After nine consecutive weekly declines and a share price that has more than halved, Tesla cannot still be overvalued – can it? No, says US commerce secretary Howard Lutnick, who told Fox News viewers to “buy Tesla”. The price is “unbelievable” and “will never be this cheap again”.
What’s “unbelievable” is a cabinet secretary pumping Elon Musk’s stock on TV. Moreover, Tesla’s collapse is all too believable, suggests renowned valuation expert Prof Aswath Damodaran.
In January 2024, Damodaran valued Tesla at $182, buying the stock for his own portfolio when it fell to $170. Shares topping $488 in December might indicate Tesla’s prospects brightened in the meantime, but Damodaran’s latest valuation update suggests otherwise.
Firstly, the comeback of hybrid cars means a rethinking of the “electric cars are inevitable” narrative. Secondly, Tesla has its “first real competitor” in Chinese EV company BYD. Lower prices and more choices mean BYD is “clearly beating” Tesla in Asia and Europe.
Damodaran expects the EV market will bifurcate into a lower-priced and a premium market, with BYD leading in the former and Tesla holding its own in the latter.
Investors certainly like BYD – shares have doubled over the last year and hit all-time highs when BYD claimed it can charge cars in just five minutes.
Thirdly, Tesla’s “politicisation” is problematic. An added issue: even shareholders who like Musk’s politics worry he is too distracted.
After crunching the numbers, Damodaran arrived at a valuation estimate of about $150, roughly 35 per cent below current levels.
Whether the market agrees is moot – Tesla shares are usually driven more by sentiment than valuation – but 2025 has shown sentiment has its limits when reality bites.
