Is Tesla Overvalued?

December 9, 2025

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Tesla is the 8th largest stock in the market today.  Over the weekend, Morgan Stanley’s research department re-initiated coverage on the stock.  Up until recently, the MS team covering Tesla was led by one of the biggest Tesla bulls on the street. But he was promoted to a new research role within MS.

So they've got a new team covering Tesla now. They released a 75-page (!) report on the company.  Needless to say, we wont go through all of it here.  

But there’s one chart that summarizes the whole thing.  See below.

Tesla now has 5 distinct divisions in the company.  The MS team assigned a value to each piece.  And then, in a classic “sum of the parts” analysis, they added up the pieces and came up with their price target on the stock.  

Each of those bars in that chart has its own separate valuation. The inputs for those valuations include a lot of long-term assumptions. For instance, how many humanoid robots do you think Tesla will sell in 2035? You may say "that's impossible to answer". But it's important for assessing the value of the stock.

This is the dual-headed problem for understanding Tesla. First, there are multiple big pieces. Second, the pieces require a lot of estimates about the future.

And this is an important concept to grasp when considering Tesla as a stock.  The traditional “selling electric cars” business is under a lot of pressure at the moment.  But look at the chart. They only assign $55/share (of the $425 total) to the regular auto business.  The traditional EV business is only 13% of their price target!

The vast majority of the stock value is based on future things.  Robotaxis, self-driving car software (ie, “network services”), and robots (ie, “humanoids”) account for $330 of the $425 target price.  In this respect, Tesla is more like a concentrated venture cap fund.

The three non-EV segments are barely making money at the moment.  But as MS outlines in their report, the market opportunity for them is potentially massive.  

The bottom line.  Tesla’s stock price is trading over 200x times earnings at the moment.  (Compare this to only 26x for Nvidia.)  By any conventional metric, Tesla is way overvalued.  But that multiple is so high because the market expects lots and lots of good things to happen in the future.  “Robotaxis!  Robots!”  etc.  

Will those things happen?  That’s what makes it a horse race.  You get to make the call.