Tesla (TSLA) Stock: Shares Rise Despite Valuation Concerns

TLDR:

Table of Contents

Tesla stock rose 0.5% in premarket trading despite stretched valuation concerns
Morgan Stanley analyst Adam Jonas values Tesla at $1.3 trillion with only $240 billion from car business
Xiaomi is launching YU7 SUV, a direct competitor to Tesla’s Model Y in China
Tesla’s robotaxi testing in Austin appears limited to only 10-20 cars with remote human oversight
Tesla shares have risen 44% since Q1 earnings despite falling 2025 earnings estimates

Tesla stock continued its rollercoaster ride this week. Shares gained 0.5% in premarket trading Tuesday, even as the company faces mounting questions about its sky-high valuation and new competition from Chinese tech giant Xiaomi.

The EV maker’s stock has surged about 44% since reporting first-quarter earnings on April 22. This remarkable climb comes despite Wall Street lowering its 2025 earnings estimates for the company.

Tesla now trades at roughly 172 times estimated 2025 earnings. That’s more than double the 72 times multiple from a year ago.

Morgan Stanley analyst Adam Jonas highlighted this valuation puzzle in a Monday note. “Nearly 15 years after going public, investors struggle to justify the value of Tesla as much as ever before,” he wrote.

Jonas still rates Tesla shares as a Buy with a $410 price target. This values the company at approximately $1.3 trillion.

The analyst attributes only $240 billion of that valuation to Tesla’s car business. That’s just $75 per share.

The majority of Jonas’ valuation comes from Tesla’s AI-related businesses like self-driving technology. He doesn’t even include the robot business, which he estimates could be worth another $100 per share.

New Competition Emerges

While Tesla’s stock shows strength, the company faces fresh competition in China, one of its most crucial markets.

Xiaomi announced it will unveil its YU7 SUV on Thursday, May 22. This midsize crossover EV will directly compete with Tesla’s popular Model Y.

Xiaomi YU7 SUV is Coming! 🚗⚡️🔥 Official Launch on May 22! 🎉$XIACF
Xiaomi turns 15 and they’re throwing a tech party — and guess who’s stealing the spotlight?
The all-new Xiaomi YU7 SUV! Your next electric beast is charging onto the scene this May 22 — get hyped!
Deliveries… pic.twitter.com/oKUqFCmjkA
— ChinaBreaking (@tarun2101) May 19, 2025

The Chinese tech company has already found success with its SU7 electric sedan. The Porsche Taycan-inspired vehicle sold 135,000 units in 2024. Sales are expected to more than double in 2025.

Xiaomi’s approach of treating cars as extensions of digital devices has resonated with Chinese consumers. The SU7 features a tech-forward interior powered by HyperOS, a version of Android.

The news may have contributed to Tesla’s 2.3% stock drop on Monday. The broader tech sector also traded lower due to economic and debt concerns.

Robotaxi Reality Check

Tesla’s autonomous driving ambitions remain central to its trillion-dollar market cap. However, the company’s robotaxi testing plans appear more modest than some investors expected.

Morgan Stanley’s Jonas recently met with Tesla’s head of investor relations to discuss autonomous driving. He reported that Tesla’s Austin robotaxi fleet would be very small, around 10 to 20 cars.

These vehicles will have “plenty of tele-ops” to ensure safety. This means human operators will intervene remotely when a robotaxi needs assistance.

Tesla’s cautious approach stands in contrast to competitors like Alphabet’s Waymo. The Google parent company is already performing 250,000 robotaxi rides per week in the US.

Regulators are closely watching Tesla’s autonomous driving plans. The National Highway Traffic Safety Administration (NHTSA) is investigating the safety of Tesla’s Full Self-Driving system.

The agency has requested detailed information about Tesla’s “development of technologies for use in ‘robotaxi’ vehicles.” This regulatory scrutiny could delay Tesla’s timeline.

Despite these challenges, Tesla bulls remain optimistic. The company recently added Chipotle president Jack Hartung to its board of directors.

Hartung could help explore “alternative ways” to compensate CEO Elon Musk. This follows a Delaware judge’s decision to invalidate Musk’s $56 billion pay package.

Tesla stock has now risen for four straight weeks. This has reduced its year-to-date losses to around 16%.

The coming months will test whether Tesla’s valuation can be justified by progress in AI, robotics, and autonomous driving. For now, the stock continues to defy conventional valuation metrics.

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