Traders let some air out of Tesla’s tires this week after a historic run. 

News that the company’s annual vehicle sales fell for the first time since 2011 broke a winning streak for its stock, which hit record highs over five consecutive days in December. At one point its market capitalization on the Nasdaq of US$1.5 trillion, or about $2.16 trillion, equalled half the value of the entire TSX and nearly half that of the global auto industry.

By Wednesday’s close, with shares down about 19 per cent from their December 18 high of US$488.54, it still counted among the world’s 10 most valuable companies.

Which invites questions: Does Tesla’s stock price reflect the company’s punching power in the marketplace? Or its CEO’s position near the future epicentre of U.S. power?

As it stands, Tesla is more valuable than Toyota and Volkswagen combined, which together were on track to sell upwards of 18 million vehicles last year, compared with Tesla’s 1.79 million. General Motors, which has an autonomous vehicle unit like Tesla, has a far smaller market value of US$56 billion. 

“​​​​Markets don’t really care about what I earned in the past…what we really care about are future cash flows,” said University of Waterloo finance professor Neil Brisley. “How much market share can you grab in what is basically greenfield territory? There’s no formula for this.”

Unquestionably, Tesla is future-focused, with recurring revenue streams from its software services like Full Self Driving and planned robotaxis. While products in development like the Dojo supercomputer and Optimus robot will require big investments by Tesla, investors seem to trust CEO Elon Musk to temper costs, Brisley said.

No less a factor, though, may be Musk’s role heading the proposed Department of Government Efficiency for U.S. president-elect Donald Trump, who takes office in 11 days. Brisley figures investors hope Musk’s newfound political power will help him navigate closely regulated industries like autonomous driving, and that Trump will be less likely to take issue with a businessperson’s expansion in China if that person is his political ally.

That’s certainly the opinion of Wall Street analysts who are bullish on a stock whose  12-month price-to-earnings ratio is over 100—well above tech companies like Nvidia and automakers like Ford.

That ratio implies a “ridiculous compounded growth for a number of years” said Partha Mohanram, a professor at the University of Toronto’s Rotman School of Management. “If you look at the actual fundamentals of Tesla, its growth has actually been plateauing.” 

Mohanram acknowledged that companies like Amazon have bucked such indicators in the past. With Tesla, the risk is that some of its advantages—like Musk’s ties to Trump, or barriers limiting Chinese competition in North America and Europe—could fall away. 

As Tesla’s stock continues to whipsaw, George Athanassakos, a professor at the Ivey Business School at Western University, warned that average investors should avoid over-exuberance about trends like AI that are boosting Tesla’s stock, given how difficult it is to time the market and trade individual stocks without an adequate financial strategy. 

Even for U of T’s Mohanram, the run-up in Tesla’s price has been “quite difficult to understand” given Trump’s anti-EV stance. “I would never, ever tell somebody to go short Tesla,” he said. “The valuation doesn’t seem to follow any rationality.” 

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