Is Tesla Stock a Buy?

Tesla (NASDAQ: TSLA) was once a darling on Wall Street. Shares of the Elon Musk-led company soared 3,130% in the five years leading up to their peak in November 2021. However, the situation hasn't been too kind to investors since then.

Although this "Magnificent Seven" stock is seeing some positive momentum, up more than 40% in the past six months, it remains 40% off its all-time high. Investor sentiment isn't as high as it once was, but it does appear to be improving. Does this make Tesla a smart stock to buy right now?

Hitting the brakes

Tesla thrived when interest rates were low. In 2021, before the Federal Reserve started rapidly raising rates to fight inflation, sales surged 71%. But as borrowing costs rose, buying new electric vehicles (EV) became less affordable for consumers. And Tesla's revenue trends started to weaken.

Sales increased a respectable 19% in 2023. But through the first six months of this year, the top line declined by 3%, indicating a new reality that shareholders just aren't accustomed to with what has historically been a fast-growing enterprise.

Competitive forces, from both domestic and Chinese rivals, also make for a crowded field that doesn't let Tesla stand out as it once did. The business recently reported 462,890 EV deliveries in the just-ended third quarter, which came up short of Wall Street analyst expectations.

Hoping for an autonomous future

Investors are hoping for better days, though. They might come on Oct. 10, when Tesla and Chief Executive Officer Musk hold an event called "We, Robot" to reveal details about its robotaxi ambitions. We don't know what information will be shared with the public, but the expectation is that the business will provide specifics about its autonomous-vehicle future -- including a clear timeline.

Tesla and its CEO have not been shy about their robotaxi initiative. The hope is that Tesla will one day operate a worldwide fleet of these innovative EVs, which can generate high-margin revenue. Musk went so far as to say these robotaxis will see "quasi-infinite demand."

Cathie Wood of Ark Invest agrees. She believes not only that the robotaxi market will be worth a jaw-dropping $8 trillion to $10 trillion by 2030, but also that Tesla can command a meaningful share of this industry.

Expectations remain high

Even though Tesla shares are off 40% from their peak, they still look expensive. The stock trades at a price-to-earnings (P/E) ratio of almost 70. To be fair, this is way below the peak of 1,402 at the start of 2021. But the current valuation still reflects the market's high expectations for Tesla's prospects.

This remains a story stock. In other words, the investment community will continue to give Tesla a premium valuation because of just how strong the belief is in Elon Musk and what he can accomplish.

I take a different approach. I don't believe the stock looks like a smart buying opportunity right now. At the end of the day, Tesla still sells EVs, and ones that are not as popular or revolutionary as they once were. It hasn't been able to escape the realities of being a car manufacturer, like cyclicality and competition.

The only reason to buy shares is a conviction that Tesla will fulfill its robotaxi goals. Although the Oct. 10 event might end up being a step in the right direction, I still think we are a long way off from Tesla's business model changing drastically for the better.

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.