I think the U.S. is in a bit of a bubble right now. I’m not the first to say this; many people have said the same thing already. But I can profit off of this belief, by finding particularly overvalued stocks and taking inverse positions — inverse etf’s have become readily available in the last 5 years or so. I’m taking a large (compared to my net worth) inverse position on Tesla by purchasing TSLS. This blog post serves three purposes:
- Explain what I was thinking so I can look back on it later, and hopefully learn something from the ways I was right and the ways I was wrong
- Force me to clarify my thoughts somewhat
- Allow me to say “called it!” when I make money on this 😛
Roughly speaking, there are five reasons I think Tesla is overvalued:
- It’s a meme stock
- The cars are not competitive
- The robotics play is going nowhere
- The AI play won’t save them
- The shareholders make bad decisions
It’s a Meme Stock
Elon Musk is infamous. He’s loud, gets involved with media in unconventional ways, and makes his opinions very public. They are often libertarian and conservative ideas, bold engineering claims, and things like that. Even the products are associated with political stances; the cybertruck is decidedly conservative. At the same time, many retail investors now invest just for laughs, or as an expression of personal beliefs (eg, the GME rally, the rise of r/wallstreetsbets, cancelling / supporting companies due to political stances, etc). This combination means TSLA has been supported by a lot of these investors.
None of this is attached to the fundamental performance of the company, so it carries the stock price above where it should be.
The Cars are Not Competitive
There are tons of competitors in the EV space now. Outside the US, BYD is famously affordable and feature-rich, and there are many other challengers that are just getting started. Tesla’s competition outside the US is both better and cheaper, so I think it is basically doomed internationally. Even within the US, many traditional car manufacturers have competitive EV options. Most options are now similar on big items like range and charge time, and the overall finish of vehicles is generally better from the traditional car manufacturers. If somebody wants an EV, a Tesla is no longer the clear choice. Tesla-as-a-car-company is no longer disrupting an established industry, and so should be priced similar to conventional car companies. I think it should be towards the low end due to its limited product selection, and heavy reliance on public whims. Scrolling through this list [1] in Nov 2025, the P/E ratio for traditional car manufacturers ranges from about 4-40. Tesla’s P/E ratio is at 262, so I’ll say it’s overvalued as a car company by roughly an order of magnitude. Tesla is not just a car company, but I do think it’s still primarily a car company. I’ll discuss its other products in later sections, but for now I’ll just say I don’t think the other products fully justify this valuation difference.
The Robotics Play is Going Nowhere
Consumer robotics is really hyped (in Nov 2025). But people who have been in the industry for a significant length of time have a much more restrained view of the short-term possibilities. The main thing we want from consumer robotics is functional interaction with the real world. We want robots to clean our table and put the dishes away, or to pick up the toys in a child’s room. And we want that for less than a housekeeper costs. But interaction with the real world is really hard. Humans have sensing across their whole bodies, if you brush somebody or a wall, you know it immediately. And when people lose sensing, this is a significant issue – when diabetic people don’t have feeling in their feet, it is a significant risk to their wellbeing! We take this kind of sensing for granted, and replicating this sort of thing is still decades off for robotics. Sensing pressure even at a small number of distinct places is expensive. Sensing over a large area with good location detection is practically non-existent, this is the realm of PhD projects. Without this sort of sensing, we will not have robots that can safely crack eggs, or carry your good dishes, or avoid stepping on your baby. If you want a more authoritative and in-depth discussion, here’s a good article from Rodney Brooks on the topic [2]
I have given a pessimistic outlook for consumer robotics in general in the next few decades. Tesla is even further behind. First, they have committed to a humanoid design, which is very much in the zeitgeist right now, but is just stupid. Balancing safely on legs is hard. We don’t need to add this sort of difficulty to an already difficult problem. And their demos have been mostly smoke and mirrors, with motions preplanned, or with robotics remotely piloted by people off-stage. The main tell-tale signs are the motion of the robots itself. The links move slowly, the feet don’t confidently touch the ground, it generally looks awkward. If the robot could walk confidently, it would be doing it. Look at the Boston Dynamics videos for a good example of more confident motion (and even those videos have elements of pre-planning). It is so much harder to move intelligently in a new space, without pre-planning or coordination in advance. Tesla’s robotics progress is impressive given how recently they began. But they are not going to magically overcome the difficulties that have plagued robotics for 40 years.
The AI Play Won’t Save Them
It’s not entirely clear what Tesla’s AI work is meant to do. Is it supposed to make self-driving cars a reality? Is it going to paper over the difficulties in manipulation for their robotics effort? Is it going to be a pure AI play? I don’t think it particularly matters, because it’s going to lose at all of these. There is no reason that Tesla’s self-driving capabilities will be any better as a service than the many competitors. Indeed, they seem to be losing to Waymo in this regard. The AI cannot overcome lack of sensing for the robotics case. And there are dozens of pure AI companies at this point, so the chance that Tesla wins significant market share there is very small. Indeed, Musk has his own distinct entry in this space (xAI). Overall, I see little promise for the AI efforts. I think they are fueled more by general AI optimism than by a well considered plan.
The Shareholders Make Bad Decisions
Because TSLA behaves like a meme stock traded on ideals and emotions, shareholders often approve whatever Musk proposes. He was recently awarded a large pay package with plenty of contingencies. The contingencies make it nearly impossible for Musk to get the full possible reward, but the details of the package are themselves ridiculous. It expects Tesla to become the most valuable company in the world. The unrealistic plans were approved largely because Musk supported them. This is wasted effort, bad planning, and little accountability for Musk. Without anything keeping him in check, Musk is free to make poor decisions and extract value through any means possible. This is not good for the company.
Reasons I Could be Wrong
These are a couple ways I could foresee being wrong. First and most important, Tesla also has a solar and battery energy storage business. As time goes on, more and more competitors are popping up in these spaces, but I understand that Tesla’s offerings are genuinely pretty good. They were an early entrant into the space, and their head start in development will likely keep them ahead for a while. I don’t know whether they’ll maintain that lead, but I see this as the largest potential growth opportunity. Solar is exploding in demand, and I expect that to continue for a good while.
Second, even if Tesla fails as a company in its own right, Musk might direct one of his other enterprises to buy Tesla outright. He was accused of doing something like this for SolarCity. I don’t know enough to say whether the SolarCity acquisition was a bailout, but in either case it’s possible that he does it with Tesla. I don’t think this is a very large risk, because it doesn’t make good business sense. It would generally be better for him to let Tesla go bankrupt, and keep his losses separate from his profits.
Third, if Tesla gets a lot of political favor, it might receive political support or subsidies despite weak product offerings. At this point I think this is unlikely; Musk has basically fallen out of Trump’s favor, and remains broadly popular mainly with staunch libertarians.
Overall
I think there is broadly a bubble in the US economy, but Tesla is particularly overvalued. Its valuation is too high as a car company, and I don’t believe the robotics or AI will be profitable enough to “save” it. It may do well in renewable energy, but this is not enough to pin all its hopes on. Especially with the retail enthusiasm for the stock, and the poor financial decisions that the shareholders have allowed. When the bubble bursts, I think Tesla will be one of the harder hit stocks. Additionally, the EV shortcomings are already beginning to show, and are only going to get worse as BYD’s lead grows, so I think it will start falling in the near term (say within the next two years?). I am willing to hold an inverse (TSLS in this case) and wait for a couple years until this comes true.
[1] https://companiesmarketcap.com/automakers/automakers-ranked-by-pe-ratio/
[2] https://rodneybrooks.com/why-todays-humanoids-wont-learn-dexterity/