Tesla is facing tough times. After a period of soaring stock prices following the 2024 election, the electric vehicle giant’s stock has now plummeted by about 50%, wiping out all previous gains. Meanwhile, Tesla’s profit margins are shrinking, and it’s losing market share across major global markets.

CEO Elon Musk has big plans for the company’s future, including new products like Cybercabs, a new roadster, AI ventures and even a Tesla Diner. However, despite Musk’s optimism, one key earnings metric reveals a troubling outlook for the stock.

Slowing Deliveries and Falling Revenue

Tesla reported its first-quarter results recently, and while its stock saw a brief jump in after-hours trading, the actual numbers were concerning. Tesla’s EV deliveries dropped by 13% year-over-year, and its revenue fell by 9%. The only slight positive was growth in its energy generation and storage segment. The company’s gross margin decreased to 16.3%, and its operating margin was razor-thin at just 2.1%. These figures highlight how Tesla is struggling with rising costs and increasing competition from other EV brands. The company’s market share has stalled in key regions like China, North America, and Europe.

Tesla’s management isn’t optimistic about the rest of 2025 either. They’ve delayed giving any new guidance for the year and haven’t provided insights on growth expectations. This is a concerning sign for a company that once seemed poised to be one of the fastest-growing tech giants.

New Products, Will They Make a Difference?

Optimistic investors may point to Tesla’s new product plans, like a more affordable vehicle in 2025 and a target to ramp up production to 3 million vehicles annually. But even with these promises, there’s a big question: Where is the demand? Sales are currently supported only by significant price cuts that have severely hurt profit margins. Meanwhile, competitors like BYD are gaining ground in China, further eroding Tesla’s market share.

Tesla is also betting on new products outside of its core EV line. One of these is the Cybercab, an autonomous vehicle expected to start production in 2026. Tesla’s Optimus Robot is still in testing, and there is no public timeline for its release. While these products are innovative, they are unlikely to have a meaningful impact on Tesla’s bottom line anytime soon. Investors banking on these new developments might be putting too much faith in a company that has failed to meet many of its previous promises.

Tesla’s High Price-to-Earnings Ratio

For any company, long-term stock price growth is closely tied to earnings growth. However, to benefit from that growth, investors must buy the stock at a reasonable price. In Tesla’s case, neither earnings growth nor an attractive valuation is present. Tesla’s earnings are on the decline, with adjusted earnings per share (EPS) of just $0.27 in the first quarter well below analysts’ expectations of $0.39.

Tesla’s operating income has been falling since 2022 and is likely to continue declining in 2025 if its profit margins don’t improve. Even more concerning is Tesla’s forward price-to-earnings (P/E) ratio, which stands at an astronomical 95. This is much higher than the market’s average, which typically ranges between 20 and 25. This suggests that Tesla’s stock is overpriced, and more pain could be ahead for investors.

Conclusion: Caution Is Advised

Given Tesla’s declining earnings, high valuation, and uncertain future, it’s clear that more trouble could lie ahead for the company’s stock. Investors should be cautious and avoid buying Tesla shares at this time.