Cathie Wood has made a name for herself at ARK Invest with bold bets on transformative technology stocks such as Tesla (NASDAQ: TSLA). She has accumulated billions of dollars in investor assets with promises of high growth by focusing on innovation.
Her latest prediction is for Tesla to rise to $2,600 a share, which would bring its market capitalization close to $10 trillion.
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Today, it trades around $275. Wood and other investors are optimistic about the stock. However, if we look under the hood (or trunk?), the picture is a lot murkier. Here’s why the stock is much more likely to crash than reach a price of $2,600 anytime soon.
Market share declines
With the emergence of electric vehicles (EVs) taking market share from combustion-engine vehicles, Tesla was able to grow its business to close to $100 billion in revenue at one of the quickest rates in history.
In recent quarters, this growth has slowed down big time. Tesla’s market share in the United States as a percentage of EVs sold has fallen from 75% in the first quarter of 2022 to 43.5% in the first quarter of 2025.
While still the leader in the space, this market share slowdown has greatly affected revenue, which declined 20% year over year last quarter.
It has occurred outside of the United States, too. In China, homegrown players are leaving Tesla in the dust, while European players are fighting back with new models hitting the market.
Even with Tesla greatly reducing its selling prices to customers, the company has failed to grow in recent quarters, which is hurting its profit margins. Gross margin has fallen from close to 30% to under 18%, while operating margin has slipped from 16% to 7.4% over the last 12 months. If current trends persist, these metrics will keep moving in the wrong direction.
Charging an electric vehicle.
Fast energy growth, speculative bets with new projects
One strong part of the Tesla business is its energy pack segment, which grew revenue 67% year over year last quarter to $2.73 billion. These battery packs are getting deployed across the electric grid to help create more-stable energy systems for utilities around the globe. Commercial customers and even individuals can use these products, too.
Growth from energy packs is great, but it is not meaningful for a company the size of Tesla with a market cap of over $800 billion. This segment has low gross margins and a limited addressable market, given these are mostly back-up solutions for electricity generation in times of need. There is a reason CEO Elon Musk does not project huge revenue from this segment in the near future.
So what does the CEO talk about? Mainly autonomous vehicles and the Optimus humanoid robot. Tesla has been talking up its research into these two fields for many quarters now. For its self-driving Robotaxis, Tesla has been claiming for a decade that the technology will be ready shortly for human use, but it has not arrived yet.
Don’t hold your breath that it will happen in 2025. The humanoid robot project is something Musk thinks can generate trillions of dollars in annual revenue, but it has failed to get a working prototype.
If these two segments are the future of the company, investors are going to have to wait patiently for the profits to bear fruit, if they ever come at all.
TSLA Operating Margin (TTM) data by YCharts; TTM = trailing 12 months.
Tesla’s overvalued stock price
When looking at Tesla’s stock price, it is clear the company trades at a premium multiple to its peers, the “Magnificent Seven,” and the broad market at large.
It has a price-to-earnings ratio (P/E) of 151. The broad S&P 500 trades at a P/E between 20 and 30. The other Magnificent Seven stocks trade at P/E ratios closer to 30, 40, or 50.
Automakers typically trade at a P/E of 10 or below. Tesla looks grossly overvalued no matter how you slice it, especially with its revenue now falling around the world.
Management may continue to dangle the carrot of new prototypes to keep shareholders happy. Cathie Wood may still have a price target of $2,600. But smart investors know that a stock follows its fundamentals over the long term, which is why Tesla stock is much more likely to crash than soar at current levels. Don’t buy it for your portfolio today.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
