Tesla’s Stock: Cathie Wood Sees a Bull Run—Here’s Why a Crash Is Brewing
78min read Tesla (TSLA) has long been a lightning rod for investor passion, but its stock’s roller-coaster ride in recent years has left many questioning its sustainability. While famed investor Cathie Wood of Ark Invest remains bullish, arguing that Tesla’s innovations in AI and energy storage will drive explosive growth, the data tells a darker story. A combination of overvaluation, operational missteps, and intensifying competition suggests a crash is far more probable than a surge. Here’s why.
The Numbers Don’t Lie: Tesla’s Stock Is in Free Fall
Tesla’s stock peaked at $479.86 in December 2024 but plummeted to $221.86 by May 2025—a 43% drop in just five months. This decline mirrors broader struggles: revenue growth has stalled, earnings have collapsed, and the company’s once-heralded dominance in electric vehicles (EVs) is eroding. In Q1 2025, Tesla’s deliveries fell 24% year-over-year, while its non-GAAP earnings per share (EPS) dropped to $0.27—a 40% decline from 2024. With a price-to-earnings (P/E) ratio of 161.23, Tesla is now valued at 15x times the P/E of traditional automakers, despite weaker fundamentals. This disconnect is unsustainable.
The Overvaluation Crisis
Tesla’s P/E ratio isn’t just high—it’s astronomical. For context, General Motors trades at a P/E of 5.6, and Ford at 12.76. Even in a sector known for speculation, Tesla’s valuation defies logic. Swedish billionaire Christer Gardell, managing partner at Cevian Capital, recently warned that Tesla’s stock could drop 95% due to its reliance on Musk’s “circus-like” persona and overhyped projects like the Cybertruck.
The data speaks plainly: Tesla’s P/E has soared to 161.23, while competitors trade at single-digit multiples. This gap is a red flag. Investors are pricing in perfection—a flawless execution of autonomous taxis, energy dominance, and global market share—that has yet to materialize.
Operational Headwinds: The Cybertruck Fiasco and More
Tesla’s flagship Cybertruck, once projected to sell 500,000 units annually, has underwhelmed, hitting just 30,000 units in 2024—a mere 6% of its target. To boost demand, Tesla slashed prices and offered discounted financing, actions that strain margins. Meanwhile, production bottlenecks persist: a 13% year-over-year drop in deliveries in Q1 2025 underscores execution challenges. Competitors like GM and Rivian are now nipping at Tesla’s heels, with GM’s Hummer EV and Ford’s F-150 Lightning eating into U.S. market share.
The Debt Question and Musk’s Distractions
While Tesla’s total debt has dipped to $7.24 billion, its debt-to-equity ratio of 9.6% masks deeper risks. The company’s cash reserves, though ample ($37 billion), are not immune to a prolonged sales slump. Worse, Musk’s political entanglements—such as his role in the White House’s “Department of Government Efficiency”—have fueled reputational damage. Investors now face a stark reality: a CEO increasingly focused on side projects and controversies, not Tesla’s core business.
Valuation vs. Reality: A Disconnect with No Safety Net
Warren Buffett’s mantra—“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”—applies here. Tesla’s valuation assumes flawless execution of high-risk ventures like robotaxis and AI, while ignoring its shrinking gross margins (down to 16.3% in Q1 2025) and rising competition. Even its energy division, which grew 67% to $2.7 billion in Q1, can’t offset automotive declines. With short-term investors fleeing—a 13% drop in stock price year-to-date—the foundation is shaky.
Conclusion: The Odds Favor a Crash—Not a Surge
The evidence is clear: Tesla’s stock is a house of cards. Its valuation is detached from reality, its operational challenges are mounting, and its leadership is distracted. Cathie Wood’s optimism hinges on a best-case scenario where Tesla executes flawlessly on every front—an outcome that’s increasingly unlikely. With a P/E ratio 15x higher than peers, declining sales, and a CEO whose priorities are in flux, the risks far outweigh the rewards. For investors, the writing is on the wall: a crash isn’t just possible—it’s probable.
As of May 2025, Tesla’s stock is down 32% year-to-date, underperforming the S&P 500 by a wide margin. The data doesn’t lie—this is a stock primed to fall further.
