Despite a staggering 48.5% drop in European sales in October, Tesla (TSLA) stock surged nearly 10% this week. Behind this counterintuitive phenomenon lies investors repricing Elon Musk’s artificial intelligence ambitions – Tesla is transforming from an automaker into an AI technology company.
The latest data shows that not only did Tesla’s European sales nearly halve in October, but its cumulative sales this year have also fallen by 30%, a stark contrast to the 26% growth of the overall European EV market. The traditional automotive business faces severe challenges: the flagship Model 3 and Model Y account for over 90% of the company’s EV sales, while more than a dozen competing models priced under $50,000, including three new models from Rivian, are set to launch in 2026.
Yet, the market seems to overlook this. Tesla currently trades at a sky-high P/E ratio of 270 and a price-to-sales ratio of 14, far exceeding Rivian’s P/S ratio of 3. The core support for this valuation gap is the company’s all-in bet on the robotaxi business.
AI Chip Progress Ignites Market Enthusiasm
Last weekend, Musk disclosed significant progress on Tesla’s self-developed AI chips on social media: the company has already designed and deployed millions of AI chips across its vehicles and data centers, is finalizing the next-generation AI5 chip, and has already begun developing the AI6 chip. More crucially, Tesla plans to emulate Nvidia’s rhythm, launching a new generation of chips and achieving mass production every 12 months.
This announcement allowed investors to see Tesla’s deep groundwork in the AI infrastructure field. Musk had previously stated bluntly, “If you don’t believe in Tesla’s future in autonomous driving and robotics, don’t hold our stock.”
Robotaxis: The Trillion-Dollar Valuation Bet
Analysts estimate the potential size of the robotaxi market to be a massive $5-10 trillion. In this race, Tesla holds unique advantages. Unlike Alphabet’s Waymo and Uber, Tesla employs a vertically integrated model, manufacturing vehicles while also developing autonomous driving technology. This promises faster scaling speeds, lower operating costs, and greater agility in technological iteration. Musk predicts Tesla will produce 2 to 3 million Cybercab robotaxis in 2026. If this target is met, Tesla would undoubtedly become the leader in this field.
However, risks lurk behind the optimism. Tesla’s Q3 earnings report revealed that although revenue grew 12% year-over-year to $28.1 billion, operating profit plummeted 40%, and the operating margin compressed from 10.8% to 5.8%. Simultaneously, operating expenses surged 50% to $3.4 billion, primarily directed towards AI infrastructure and new product development.
This “cash-burning” model is particularly prominent in the capital-intensive auto industry. If the commercialization of the autonomous driving business is delayed, or if it encounters technical or regulatory hurdles, the current high valuation could face significant pressure.
The Battle Between AI Dreams and Automotive Reality
Tesla is at a critical transformation point. On one hand, its traditional automotive business faces increasingly fierce competitive pressure; on the other, its AI and robotics business carries the growth imagination for the company’s future.
The stock’s current strong performance suggests investors seem more willing to believe in Musk’s AI vision than the immediate sales data. However, maintaining this confidence requires Tesla to demonstrate tangible progress in autonomous driving commercialization within the next 12-18 months. If the robotaxi plan advances as scheduled, Tesla could potentially open a new growth chapter; conversely, the high-valuation bubble risks deflation.
