Tesla’s Wild Ride: Extreme Volatility Despite Recent Gains
Despite climbing around 20% in recent weeks, Tesla’s stock is still down roughly 45% from its peak in December last year. In just a few months, investors have nearly halved the company’s value, which now sits around an $850 billion market cap.
At the center of this shift is Elon Musk. His increasing political involvement—ranging from his proximity to the U.S. President, support for Germany’s right-wing AfD party, and a string of controversial public gestures (some interpreted as Nazi salutes)—has soured public sentiment. Whether fair or not, the backlash has been severe.
The fallout has extended beyond the markets. We've seen disturbing reports: Tesla Superchargers set on fire, Cybertrucks vandalized with swastikas, wheels stolen off parked Teslas, and even gunshots fired at a Tesla showroom in Oregon. The mood toward Musk and his company has taken a sharp turn—and investors are following suit.
This marks one of the fastest sentiment reversals I’ve witnessed in all my years watching markets.
Following Trump’s election victory on November 5th, Tesla’s stock surged nearly 90%. Musk was jubilant. His wealth skyrocketed, briefly pushing him to a mind-blowing net worth of $486 billion—nearly equivalent to erasing the value of a company that makes 500 $100 million jets a year. But the crash came fast.
On Thursday, March 20th, Musk hosted a surprise all-hands meeting, live-streamed on Tesla’s YouTube channel, in what many saw as an attempt to calm the storm. He spent nearly an hour pitching Tesla’s bright future and insisted it would eventually become the most valuable company in the world by far. He urged employees—and, implicitly, investors—to hold onto their Tesla shares.
Some, like Cathie Wood at ARK Invest, continue to believe in that future. And interestingly, the livestream had an impact: since that day, Tesla stock is up around 12%. But rather than signal stability, this rebound only highlights the extreme volatility surrounding the company right now.
What I found most compelling from Musk’s talk was his reference to Warren Buffett’s famous analogy about the stock market: it's like someone standing outside your house yelling out random prices for it every day. Sometimes they’re rational; sometimes they’re not. But it’s still the same house. Tesla is still the same company. The business fundamentals haven’t changed as wildly as the stock price suggests—what has changed is the emotional and highly reactive perception of its future.
What is Tesla Stock Worth?
Understanding the Motivation Behind Tesla’s Volatility
Elon Musk makes an important point—one grounded in investing wisdom passed down by Benjamin Graham, and later popularized by Warren Buffett. He’s referring to the "Mr. Market" analogy, which helps explain a fundamental truth: a stock’s price often diverges from its value.
In this analogy, Mr. Market is a wildly emotional character—some days he's euphoric, offering high prices, and other days he’s depressed, offering steep discounts. But as investors, what we truly care about isn’t Mr. Market’s mood swings—it’s the intrinsic value of the business underneath.
If the calculated value of a company is higher than the price Mr. Market is shouting about, value investors step in and buy. But if the price far exceeds the value, they simply wait—patiently—for Mr. Market to have a rough day and offer a better deal.
So, when Elon Musk talks about holding Tesla stock long-term and hints at its future value, it naturally raises a critical question: What is Tesla actually worth? And here’s where Tesla’s extreme volatility starts to make more sense.
To answer that question, we have to understand how investors estimate a company’s intrinsic value—and the most widely used method is the Discounted Cash Flow (DCF) analysis.
Now, without diving too deep into the technical weeds (we do go into this in more detail in Introduction to Stock Analysis—link in the description), the DCF is built on a simple idea: imagine buying the entire business. As the owner, you’d collect all of its free cash flow each year.
You’d forecast that cash flow for the next 10 years based on your best guess of how the business will grow. Then, after 10 years, you’d assume you sell the company for a lump sum. So the total value to you as an investor is today’s cost in exchange for a decade of cash flow and a final payout.
But here’s the key step: because money in the future is worth less than money today, you discount those future cash flows back to the present using your target return—say, 15% per year. For example, if you expect to receive $100 in year eight, that future payment would only be worth about $32.70 to you today if you want a 15% annual return.
Add up all those discounted cash flows plus the expected sale price, and you get the company’s intrinsic value—the fair price you’d pay today to hit your return goal.
But here's the tricky part: how do you estimate the free cash flow a business will generate each year?
The truth is, you’re making an educated guess. You’re researching past revenue, earnings, and cash flow trends, and projecting how fast the business might grow. And this is where things get very subjective—because the biggest driver of a company’s valuation is the growth rate you apply to those cash flows.
That’s why Tesla is such a divisive stock.
Some investors believe Tesla will continue to scale rapidly—dominating EVs, full self-driving, robotics, energy storage, and more—and assign a massive growth rate. Others think those dreams are overblown or unrealistic, and value Tesla more like a traditional automaker.
Even I’ll admit—it’s hard to predict what happens in the next 6 to 12 months. But when you zoom out to 3–5 years, Tesla’s potential is undeniable. Still, at these current valuations, everything has to go right.
Tesla has been significantly overvalued at times, largely because of its cult-like status. The disconnect between the company and the stock is perhaps most obvious with Tesla. Musk claims it’ll be the world’s most valuable business; critics on CNBC say it’s grossly overpriced. And that clash of opinion boils down to one thing: the growth assumptions baked into each valuation.
But here’s where it gets really interesting—we can reverse-engineer the DCF model to see what growth Tesla needs to justify today’s price.
Right now, Tesla’s market cap is around $850 billion. In the last 12 months, it generated about $3.58 billion in free cash flow—not a huge number. If we assume we’ll be able to sell the company in 10 years for 20 times its free cash flow, Tesla would need to grow that cash flow at 43–44% annually just to match its current valuation.
Back when the stock peaked at $480 a share—valuing the company at $1.42 trillion—it would’ve needed to grow free cash flow at a staggering 52% annually for 10 straight years.
Is that even possible?
Well, between 2018 and 2023, Tesla’s revenue did grow at a compound annual rate of 47%. So the idea of aggressive growth isn’t far-fetched. But there’s a catch: revenue is one thing, free cash flow is another.
Free cash flow accounts for all the real-world costs of running and expanding the business—factories, equipment, R&D, and more. Tesla is still a capital-intensive company, unlike a software firm with high-margin recurring revenue. Sustaining 40–50% free cash flow growth over a decade is extremely difficult unless Tesla becomes dramatically more efficient or finds a new, very profitable cash engine.
Fullself Driving Holds the Key
The Bull Case for Tesla: Full Self-Driving and the Valuation Debate
The central argument from Tesla bulls centers around the company’s potential in full self-driving (FSD). It’s a fascinating angle because, if realized, it could transform Tesla from a car manufacturer into a highly scalable software business.
Right now, Tesla operates primarily as a hardware company—it sells cars. But if full self-driving becomes fully functional, Tesla can start layering in FSD subscriptions at scale. That unlocks a high-margin software business model. And the magic of software is that, once built, the cost of delivering it to an additional user is nearly zero. It’s like Microsoft with Windows—huge upfront investment, but every extra download is almost pure profit.
Currently, Tesla charges U.S. customers $8,000 upfront or $99 per month for its FSD system. If this software achieves full autonomy and removes the need for a human driver, its value skyrockets. In fact, it could arguably be worth more than the car itself.
To understand this, imagine you're a rideshare driver or a delivery business. If FSD replaces your workforce, you'd be willing to pay a lot. That’s what excites investors—it’s not just a new revenue stream; it’s a massive, high-margin business segment.
And this is exactly where Tesla becomes difficult to value. Because it's very likely that, within the next decade, this software-based business model will start showing up in Tesla’s earnings. As a result, analysts and investors need to factor that into their valuation models, and that leads to wildly different estimates.
Take ARK Invest, for example. Their current price target for Tesla is $2,600 per share by 2029—about 10 times higher than today’s price. According to ARK’s controversial CEO Cathie Wood, the robo-taxi network alone could generate 90% of Tesla’s profits by then. Without that, their base-case valuation drops to just $350—only a modest gain from current levels.
It's reminiscent of what we saw with Nvidia a few years ago. Back in 2020–2021, Nvidia was still known mostly for selling GPUs to gamers. Then came the AI boom, and people realized Nvidia would dominate a new, incredibly lucrative segment—AI chips. At the time, Nvidia’s valuation seemed stretched, with a price-to-earnings ratio of 70 to 80. But fast-forward to today, and earnings from its AI segment have exploded—suddenly, those high prices from 2021 look cheap in hindsight.
Tesla bulls believe we could see a similar story unfold—where what looks expensive today turns out to be a bargain in retrospect if FSD, robotics, or energy storage scale as expected.
And that brings us to the million-dollar question: What is Tesla actually worth?
The stock is extremely volatile. It’s fallen 40% from its recent highs. So does that make it cheap now—or is it still overvalued?
Honestly, the only fair answer is that no one really knows. And I say that as a Tesla shareholder. I track the company closely, and even I find it tough to pin down a reliable valuation. Why? Because, as we’ve covered, everything hinges on the growth rate you assume.
If Tesla grows at just 10% annually over the next decade, my models suggest the company is worth around $100 billion today—that’s an 88% drop from current levels. But if Cathie Wood is right—and Tesla builds an industry-dominating robo-taxi network gushing $200 billion in annual free cash flow—then even its peak valuation from a few months ago starts to look reasonable.
The bottom line is this: if you look at Tesla strictly as a car company, it seems wildly overvalued. But that view may be missing the bigger picture. Tesla’s ambitions span far beyond automotive—into self-driving, AI, robotics, and energy. If even a few of those bets pay off, Tesla could become an entirely different kind of company over the next decade. Now, I’m not trying to sound like a starry-eyed fanboy—but we do have to acknowledge that possibility. What I would say, though, is that if you’re thinking of investing in Tesla...
Tesla as a Long-Term Bet
If you're investing in Tesla, you have to treat it as a long-term bet. This isn't something you can analyze like a hedge fund manager obsessing over quarterly earnings or expecting $10 billion in robo-taxi revenue by next year. That’s just not realistic—and approaching it that way will only lead to frustration.
One of the great advantages of being a long-term retail investor is that no one is breathing down your neck demanding short-term performance. You don’t need to post a 10% return this year to keep your job. You don’t need to explain why a particular stock is down this quarter. You can zoom out and take a truly long-term view—and if you're investing in a company like Tesla, I think that’s exactly what you need to do.
When it comes to big, ambitious bets like full self-driving or the Optimus robot, the timeline is largely unknowable. They’ll be ready when they’re ready. There are countless variables at play, and trying to slap a deadline on innovation of that scale just doesn’t make sense.
But for patient, long-term investors, the exact timing doesn’t matter. What matters is if it happens—not when.
Of course, that doesn’t mean there’s no risk. A large part of Tesla’s current valuation is based on expectations about future earnings. That’s why its price-to-earnings ratio is so high. And with that comes the risk: if Tesla doesn’t deliver—if it fails to achieve level-five autonomy—then the stock will likely fall even further. In that case, the market will start treating Tesla like just another automaker.
Elon Musk has even said it himself: “The value of Tesla is overwhelmingly based on autonomy. All other things are in the noise.”
So if you don’t believe Tesla will solve autonomous driving, then you probably shouldn’t hold the stock. But if you do believe they’ll get there, and you're willing to ride out the volatility, then holding—or even buying—Tesla stock makes sense. Everything else? That’s just noise.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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