The Magnificent Seven stocks have a long history of outperforming the stock market and leading market indices to new highs. Each of these stocks leverages AI to explore new business opportunities and expand their market share. However, one of these stocks is more overvalued than the others and doesn’t offer as much margin of safety.
Tesla (NASDAQ:TSLA), despite being led by one of the most capable CEOs, has a lofty valuation and declining profits. Its EVs revolutionized car manufacturing, but future growth will be more difficult.
Tesla Is A Speculative Bet On Future Ideas
The bullish thesis around Tesla is that its self-driving cars and humanoid robots will become mainstream products that justify the current valuation. While those two products have vast potential, other tech giants have noticed.
Alphabet (NASDAQ:GOOG) is already ahead of Tesla with its autonomous vehicles. Waymo has received more green lights from various U.S. cities and has even driven on some highways. The autonomous vehicle industry can have multiple winners, but Tesla has competition. BYD (OTCMKTS:BYDDY) is also ahead of Tesla with commercialized humanoid robots, but trade restrictions should keep its robots out of the U.S.
If these future ideas aren’t as successful as expected, Tesla’s stock can face some pressure with its current valuation. Any delays in project timelines can also hamper the stock.
Most Of Its Sales Still Come From Automobiles
Although Tesla has growth opportunities that extend beyond EVs, most of its revenue still comes from automobiles. The company reported $28.1 billion in Q3 revenue, with $21.2 billion of that coming from automobile sales. That’s 75% of total revenue. Meanwhile, Tesla has a much higher valuation than other automakers like Ford (NYSE:F) and Toyota (NYSE:TM), even though they generate much more revenue and profits than Tesla.
Those stocks also trade at much lower valuations than Tesla. If the autonomous vehicle market becomes saturated with Waymo, Uber (NYSE:UBER), and other automakers playing along, the opportunity may not be as lucrative as Tesla investors are anticipating.
Tesla did gain ground with its energy generation and storage solutions and its “services and other revenue” segment. Those parts of the business make up 25% of total sales.
The EV Tax Credit Is Over
President Trump put an end to EV tax credits on September 30, 2025. Since then, EV sales have been dropping sharply. Investors can also take Tesla’s strong Q3 results as a long-term omen since people were rushing to buy electric vehicles before the tax credit expired. Cox Automotive’s data suggested a 30.3% year-over-year decline in EV sales in the first month EV tax credits expired.
Lower EV sales have forced Tesla to reduce its prices and offer more affordable models. Tesla has also been losing ground to other EV makers in Europe and China, especially when Musk positioned himself as a key Trump advocate. Supporting a brash conservative leader while primarily serving liberal customers sparked plenty of political backlash.
EV tax credits were one of the biggest tailwinds for the company. Now, the tax perk is gone, and Tesla faces rising competition and a disgruntled customer base. Not everyone ditched their Tesla vehicles or stopped buying its cars because of Musk’s political stance, but the valuation requires near perfection, and the EV tax credit’s expiration is the complete opposite of perfection.
Top Gaining Stocks
Top Losing Stocks