Tesla’s share price collapse was overdue

The biggest market loser in 2022 was Elon Musk, who has become the first person in history to lose $200 billion (€188.6 billion) following the collapse in Tesla shares.

Down more than 70 per cent from their peak, the bloodletting has really accelerated lately, with shares losing almost half their value since December.

You can list specific reasons – the damage to Tesla’s brand caused by Musk’s erratic behaviour, last week’s reported revenue shortfall, Tesla’s increasingly aggressive price discounting – but it boils down to one key point: shares had to crater because the stock was ludicrously overvalued.

Tesla shares soared more than 740 per cent in 2020 and another 50 per cent in 2021. Valued at three times sales in January 2020, its price/sales ratio soared to above 30. It remained in sky-high territory in early 2022 but has since fallen back down to five.

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Even now, Tesla’s price/sales ratio remains above 2018-19 levels and is roughly five times as high as Toyota’s. Similarly, Tesla still trades on roughly 30 times estimated earnings and is valued at some $340 billion. It’s no longer ludicrously overvalued, but is it cheap? No way.