Tesla shares fell more than 3% on Monday as investors took profits heading into year-end, but the pullback barely dents what has been another remarkable year for the electric vehicle pioneer. At around $470 per share, Tesla has gained approximately 25% in 2025—a performance that would normally signal a company firing on all cylinders.

The reality is far more complex, and the divergence between Tesla's stock price and its fundamental business metrics has grown into one of the most striking disconnects in market history.

The Numbers Don't Add Up—Except They Do

Consider the trajectory of Wall Street's earnings expectations for Tesla:

  • One year ago: Analysts projected Tesla would earn approximately $4.25 per share in 2026
  • Today: That estimate has fallen to roughly $2.17 per share
  • The decline: Nearly 49% in just twelve months

Fourth-quarter earnings are expected to come in around $0.44 per share, compared to $0.73 in the same period last year—a 40% year-over-year decline. Vehicle deliveries for the quarter are tracking toward 440,000 units, with some forecasts drifting as low as 415,000.

By traditional valuation metrics, Tesla trades at approximately 230 times forward earnings and 17.5 times trailing twelve-month sales. These are numbers typically reserved for hypergrowth companies doubling revenue annually—not a maturing automaker with declining profit margins.

The Robotaxi Bet Explains Everything

What justifies these valuations? In a word: autonomy. Or more specifically, the belief that Tesla will successfully deploy robotaxi services at scale, transforming from an automaker into a transportation-as-a-service platform with dramatically higher margins.

Tesla launched a supervised robotaxi service in Austin, Texas, in June. More notably, CEO Elon Musk recently disclosed that he tested the service without a safety monitor, sparking speculation about faster regulatory progress toward fully autonomous operation.

"What you're seeing is that people are concerned about overbuilding this [AI] bubble."

— Barbara Doran, CEO, BD8 Capital Partners

Investors are essentially betting that Tesla's AI and autonomous driving capabilities will eventually generate profits that dwarf its current vehicle manufacturing business. The stock price reflects not what Tesla earns today, but what bulls believe it could earn if and when fully autonomous vehicles become a reality.

Not Everyone Is Buying the Story

Notably, some of Tesla's most prominent historical supporters are reducing exposure. Cathie Wood's Ark Invest, long one of the most vocal Tesla bulls, has been systematically trimming its position—offloading $30 million worth of shares recently while rotating into other AI-adjacent investments.

The average analyst price target sits at $402.21, suggesting the stock is overvalued by more than 15% from current levels. Of 32 analysts covering Tesla, the consensus remains "Buy," but that rating increasingly reflects disagreement about whether to value Tesla as a car company, a technology company, or something else entirely.

The Bear Case Is Simpler Than You Think

Critics point to straightforward challenges that Tesla's lofty valuation ignores:

Competitive Pressure

Chinese EV makers like BYD and NIO are gaining market share globally, while legacy automakers have finally fielded competitive electric offerings. Tesla's technological moat, once considered nearly insurmountable, appears narrower than it did even two years ago.

Demand Concerns

Reports from key markets including China and the U.S. suggest softening demand for Tesla vehicles. Social media discussions reflect consumer concerns about quality, service, and the company's controversial leadership—factors that may be affecting purchase decisions.

Regulatory Uncertainty

Full self-driving technology remains far from regulatory approval for unsupervised operation in most jurisdictions. The path from supervised robotaxi tests in Austin to a nationwide autonomous fleet involves countless technical, regulatory, and liability hurdles that may take years to resolve.

What Investors Should Consider

Tesla's stock price essentially embeds two scenarios:

The bull case: Autonomous driving works at scale, robotaxis generate enormous profits, and Tesla becomes the dominant player in AI-powered transportation. Under this scenario, today's valuation could eventually look cheap.

The bear case: Autonomous driving proves harder than expected, competition erodes vehicle margins, and Tesla must be valued like a traditional automaker trading at 8-12 times earnings. Under this scenario, the stock could fall 70% or more.

For investors, the key question isn't whether Tesla is a good company—it clearly has built remarkable products and capabilities. The question is whether today's price adequately compensates for the very real possibility that the robotaxi future arrives later, or generates less profit, than current valuations assume.

With 2026 shaping up as a crucial year for execution on autonomous driving promises, investors have little room for error at these levels.