Tesla's Stellar Stock Hides Plummeting Profits

Tesla's recent financial disclosures reveal a significant decline in profitability, with GAAP net earnings dropping 75% from their 2023 peak to $3.79 billion. This downturn is largely attributed to a 16% decrease in EV revenues over the last two years, contrasted by a substantial 44% increase in overall operating expenses. Despite growth in battery and charging services, these smaller segments cannot offset the decline in the core EV business.

The company has also increased its capital investments, adding $31 billion to its assets for new plants and equipment, even as earnings have fallen. This expansion makes Tesla more capital-intensive, potentially reducing capital efficiency. A significant portion of Tesla's profits, approximately 40% or $1.51 billion in 2025, stems from the sale of regulatory credits and digital assets, rather than its primary car and battery operations. These 'non-core' earnings are projected to diminish over time.

Stripping away these one-off gains, Tesla's repeatable earnings were only $2.28 billion. This fundamental figure starkly contrasts with the company's market capitalization of $1.44 trillion, resulting in an adjusted Price-to-Earnings (PE) ratio of 632. This valuation significantly exceeds that of other high-flying tech companies, raising questions about Tesla's ability to deliver adequate investor returns based on its core business performance.