Should You Buy Tesla Stock Right Now? The Answer Might Surprise You.

Many investors own Tesla (NASDAQ: TSLA) shares because they believe in the potential of future product platforms like the Cybercab autonomous robotaxi, and the Optimus humanoid robot. But over 70% of the company's revenue still comes from selling passenger electric vehicles (EVs), and this business continues to struggle under the weight of significant global competition.

Tesla's EV deliveries grew in the first half of 2026, after declining for two-straight years. But they took another step backwards in the third quarter (ended Sept. 30), dragging down the company's revenue and earnings.

Tesla stock is down 20% from last year's record high as I write this on Oct. 26, but should investors buy the dip, or is more downside to come? Read on for the surprising answer.

Image source: Tesla.

Tesla's earnings just turned lower yet again

Tesla delivered 838,149 EVs during the first half of 2026, an increase of 16% from the same period last year. The company then delivered a further 486,532 EVs in the third quarter, and although it blew away Wall Street's average forecast of 461,974, it represented a year-over-year decline of 2%.

Tesla has struggled to grow its EV sales consistently amid the increasingly competitive global landscape, particularly with low-cost Chinese manufacturers flooding key markets like Europe. Brands like BYD and Geely sell EVs at much lower starting price points than Tesla, while offering many of the same features. Tesla actually cut prices during the third quarter to bolster sales, and yet its deliveries still declined.

The combination of falling sales and lower prices is weighing on the company's bottom line, contributing to a 44% decline in its generally accepted accounting principles (GAAP) earnings per share during the third quarter alone. Its trailing 12-month earnings have now declined by 79% over the last two years to just $0.91 per share. This has significant implications for Tesla's valuation, which I'll discuss further in a moment.

TSLA EPS Diluted (TTM) data by YCharts

Rather than compete in a race to the bottom on price, Tesla chief executive Elon Musk is pulling Tesla back from the passenger EV business instead. He withdrew the premium Model S and Model X vehicles from the lineup earlier this year, and allocated the production capacity to the Optimus humanoid robot instead -- a product he says won't be ready to sell to customers until the end of 2027.

As far as mobility goes, Musk strongly believes autonomous vehicles are the future. In a conference call with investors last week, he discussed plans to expand Tesla's manufacturing capacity to 5 million EVs per year by 2030, which could be mostly occupied by the new Cybercab robotaxi.

Tesla stock has a valuation problem, and it could lead to more downside

Based on Tesla's trailing 12-month earnings, its stock is trading at a price-to-earnings (P/E) ratio of 434, making it a whopping 14 times more expensive than the Nasdaq-100 index which has a P/E of 29.5.

TSLA PE Ratio data by YCharts

Even though Tesla stock has declined by 20% from its all-time high, its P/E continues to climb because its earnings are shrinking. That puts investors in a conundrum, particularly with the broader market on shaky ground as interest rates rise, and concerns mount about the sustainability of the artificial intelligence infrastructure spending boom.

When the stock market last entered bear territory in 2022, Tesla's P/E contracted to just 29.8. Its stock would have to plunge by 93% to just $27 to match that P/E today, and although I'm not predicting a decline of that magnitude, I think the path of least resistance is to the downside in the near term.

The picture could look far more bullish in the longer term, particularly as products like Optimus and the Cybercab scale. But as I mentioned earlier, Optimus is still more than a year away from commercialization, and Musk's latest update suggests the Cybercab is only operating in a small area in Austin, Texas right now. The limiting factor is Tesla's unsupervised full self-driving software, which is yet to receive widespread regulatory approval.

Tesla is falling behind competitors like Alphabet's Waymo, which is already completing over 500,000 paid autonomous trips across 15 American cities every week.

With all of that in mind, I don't think Tesla stock is a buy right now.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.