Tesla is more disconnected from fundamentals

Tesla has never been a stock whose price has closely tracked its fundamentals, often trading on what seem like hopes and vibes, so-called “animal spirits” factors. But even for Tesla, whose stock is up nearly 30% in the last month, its link with reality seems tenuous these days.

“It’s the worst I’ve ever seen because the fundamentals have never been as bad,” CEO of GLJ Research and Tesla bear Gordon Johnson told Sherwood News.

Last quarter, Tesla’s revenue fell to a nearly two-year low and it only eked out a profit thanks to regulatory credits. Now that the Trump administration is trying to walk back emissions standards, what little profit is left could disappear.

In 2024, annual vehicle deliveries fell for the first time. They fell last quarter, too. This quarter isn’t shaping up much better, as sales in its three biggest markets — the US, Europe, and China — have also declined.

Tesla’s promise earlier this year to “return to growth in 2025” was expunged from its latest earnings report. Analysts’ consensus estimates on FactSet call for vehicle deliveries and overall revenue to decline this year.

Ryan Brinkman, an analyst at JPMorgan who has long lamented how Tesla’s stock price is divorced from its financial performance, says the outlook for the EV company has “significantly worsened across every metric,” including gross margin, earnings per share, and free cash flow, over the past few months.

So what’s going on with the stock? A few things.

Currently, Tesla is more correlated with the S&P 500 than ever before, so as the stock market goes, so goes Tesla. Retail traders’ interest in momentum stocks is guiding overall price action, while Tesla’s fundamentals have been left by the wayside.

That’s reinforced by strong demand in the options market, where the bulls have been squarely in control since late April. The 21-day moving average for the ratio of puts to calls has sunk close to its lowest levels on record for the stock over the past month, indicating that activity is skewed toward options that benefit from upside in the shares.

But perhaps what’s boosting Tesla’s stock the most is the impending robotaxi launch scheduled for next month, which has raised excitement among Tesla bulls to a fever pitch.

Their hopes for a future where Teslas drive themselves — goaded by robotaxi testing and videos showing full self-driving software improving — has outboxed niggling issues of financial performance and the deterioration of the company’s fundamental business.

“It’s  tangible evidence that’s saying robotaxis are moving from a more theoretical idea to a real product, a real service,” Morningstar equity strategist Seth Goldstein said.

CEO Elon Musk seems to always have some event or product for fans and investors to look forward to in the future. It’s often enough to propel the stock forward until the next big thing. Of course, big expectations can also lead to big disappointments, and Musk is notoriously bad with timelines.

“As we saw last year when Tesla even moved the robotaxi event two months later, we saw the stock sell off,” Goldstein said. “That tells me how much enthusiasm is priced into the stock that everything goes flawlessly with the robotaxi launch. And inevitably when you’re launching a new product, things do not go flawlessly.”

Any bad news surrounding the launch or autonomous driving in general — not getting the appropriate permits, delays, accidents, not scaling unsupervised full self-driving to California and the whole country as promised — could cause the stock to sell off.

“I expect fundamentals to eventually matter,” JPMorgan’s Brinkman tells us — not specifying when, just that it’s inevitable.

As Johnson put it, “ I have seen companies where the stocks have become detached from reality, but I’ve never seen a company where the stocks stay detached from reality.”