Is it wise to buy Tesla stock?

The price of Tesla's stock has dropped by about 48% since it peaked in December

Do you want to buy the dip or not?

The share price performance of Tesla has been in a complete meltdown over the last few months. Poor sales, negative publicity, and a general market selloff have all contributed to the stock's decline. Shares are down about 48% from their peak in December. The "Trump bump" is genuinely gone.

Many will be disappointed because, in recent years, Tesla has continuously been ranked among the most popular stocks on investment platforms. People who have a US or global equity tracker in their investment account, pension, or ISA will most likely also be exposed to the stock.

The selloff has been caused by a number of factors.

Many have expressed disapproval of Chief Executive Elon Musk's close ties to US President Donald Trump, especially in the last few weeks when Musk spearheaded attempts to fire thousands of federal employees.

Apart from the controversy surrounding the apparent Nazi salute following Trump's inauguration (which Musk has denied), Musk's affiliations with the political far-right, including his support of the AfD in the 2025 German elections, have also provoked outrage.

Due to this, Tesla has experienced a crisis in its reputation, which hasn't helped the company's already dire sales situation. Tesla's worldwide sales declined last year for the first time in more than ten years on an annual basis. The official first-quarter sales numbers won't be released until early April, but preliminary industry data indicates 2025 hasn't started off well either.

Has Musk's behavior altered your opinion about owning a Tesla? The European Automobile Manufacturers Association (ACEA) revealed last month that, in the first month of this year, there were only 9,945 new Teslas registered in Europe, a 45 percent decrease from the previous year's total of over 18,000 vehicles. Just this week, UBS, an investment bank, cut its global first-quarter delivery projection from 437,000 to 367,000 vehicles.

A few current owners are even selling up, both to distance themselves from the brand and in reaction to reports of vandalism involving Tesla. Compared to the same month last year, used Tesla listings increased by 70% in February, according to data from Auto Trader, the biggest car marketplace in the UK.

You can begin to comprehend why Tesla's stock has dropped so precipitously in recent weeks when you combine it with a larger market selloff. Investors are becoming more concerned about the possibility of a US recession as a result of Trump's intensifying trade war. Tesla's share price was arguably more inflated than most after the post-election gains, and Big Tech stocks have been hardest hit by the selloff due to their high valuations.

"So much for Elon Musk's newfound friendship with Donald Trump giving him the magic touch," said Dan Coatsworth, an investment analyst at AJ Bell. The notion that he would automatically receive preferential treatment was incorrect.

"The storyline has returned to the current state of Tesla, and the image is just as unsightly as the Cybertruck design," he continued. "The market for electric vehicles has hit a growth snag and Tesla is up against fierce competition. The shares fell again as a result of a negative broker comment from UBS that added to the already low sentiment.

Should you purchase the dip, Tesla?

Following recent declines in share price, Tesla appears to be approaching Morningstar's £250 fair value estimate (as of this writing, the share price is approximately £249). Recall that the company's shares were trading at about £480 at the month's peak in December.

Use TradingView to track all markets. However, this does not imply that the stock is a "buy." Investors should wait for a greater margin of safety before thinking about an entry point, according to Morningstar. In the meantime, earlier this week, UBS cut its price target to £225, which is lower than the current market price.

Additionally, Tesla remains the most costly of the Magnificent Seven companies according to this valuation metric, with its current price approaching 90 times its expected earnings.

Rob Arnott, chairman of Research Affiliates, has previously characterized Tesla's market capitalization as "hard to square" with its fundamentals in light of this. He stated in a research paper released this month that "Tesla is by far the most valuable auto manufacturer in the world, but its margins are middling and its market share growth has stalled."

Investors have been prepared to pay more for Tesla in order to be exposed to its potential for future profits, on the one hand. This narrative has been fueled by Musk, who contends that Tesla is more of an AI or robotics play than an automobile manufacturer. However, rather than discussing the current situation, this description focuses more on the company's future goals.

Although there are still a lot of safety and regulatory concerns, Musk has stated that he plans to launch autonomous ride-hailing services in Austin this summer. The question of how quickly the business can scale this aspect of its operations is also crucial.

Morningstar strategist Seth Goldstein stated, "We expect autos to remain the primary business through at least the rest of the decade, even though management's long-term vision is to transition to robotics, autonomous driving software, and ride-hailing." According to him, the stock currently has a "very high" uncertainty rating.

Investors should continue to exercise caution and concentrate on the fundamentals in light of this. Tesla still appears pricey in light of the present dangers.