Why Tesla could be the dumbest share market rally in history

Falling sales and margins on a trashed brand topped off by insiders selling shares as fast as possible used to be a sell signal for Wall Street's analysts. 

But not if you're a Tesla (NASDAQ: TSLA) investor or sell-side guru, as the stock performs perhaps the dumbest bull run in history. 

Since April 22, shares have soared around 50% when Tesla revealed quarter-on-quarter auto sales revenue plunged 31% to $US13.97 billion. It also earned 12 cents per share to place it on annualised earnings of 48 cents versus a $342 stock price over a horror quarter. 

Today, the latest data points suggest June quarter sales for its Model Y in China and Europe are set to extend their declines, with US buyers also put off by the brand damage.

As such, we can see the moves of stocks like Tesla mean there's not much difference between some parts of the share market and a fart coin casino these days, so betting on a crash wouldn't be wise.  

Still, I'm no longer a Tesla shareholder as I expect gravity will finally catch up with the stock as the auto-sales decline and inventory potentially piles up. 

Already, Reuters and others are reporting Tesla is offering worryingly-cheap 0% financing deals to sell the Model Y around the world in signs it faces a demand problem. 

Margins matter

Let's also consider the auto-maker's margins as an indicator of its future trajectory. This is worth doing as Wall Street's analysts are traditionally trained to focus on margins as an indicator of whether a business is a buy or sell. 

Rising profit margins equal a successful business that likely has a competitive advantage, product customers cannot do without, or just love. Take Microsoft (NASDAQ: MSFT), Xero (ASX: XRO) or Pro Medicus (ASX: PME) as examples. 

Falling margins traditionally equal a sell signal. Why? Because they indicate a business is experiencing rising competition and or costs - in other words trouble ahead. 

Tesla's adjusted EBITDA margin fell from 16.9% in the December quarter to 14.6% in the March quarter. Its gross profit margin fell to a five-year low of 16.3% in the first quarter of 2025, down from 17.4% in the first quarter of 2024. 

All its profit margins and sales are now travelling in the wrong direction. So, you needn't be Warren Buffett to know if manufactured vehicles don't sell - inventory builds up - and more money goes out the door, than comes in. 

So, if it cannot sell the Model Y in sufficient numbers, this is not much different to Toyota not being able to sell a Corolla. 

It's also clear Tesla faces rising competition from cheap Chinese competitors as its sales are declining in a broader market for electric vehicles that's ballooning sales.

And after the chief executive's political antics I really don't expect the brand is going to recover in Europe. Brand is intangible, but important and once damaged hard to repair. Consider how people are willing to pay $5,000 for a handbag that has the same utility as a supermarket bag from Coles (ASX: COL), but once that brand's damaged it's not coming back.

The bull case

Now, I know, chief executive Elon Musk says robotaxis will soon drive us to work while a robot puts the hoover round at home, but for now I'd have to put these claims in the stock-pumping category. 

The full-self driving (FSD) business does seem a potential winner.  I even sat in the driver's seat of a Model X as it drove itself up Sydney's William Street to Kings Cross. It was an incredible car and self-driving experience, but there's zero chance this justifies a $US1.1 trillion valuation.  

The start of the autonomous rides or robotaxi business now appears to have been pushed back to the middle or end of 2026 and from what I see Alphabet's Waymo (NASDAQ: GOOGL) is now a million miles ahead of it already. 

So today the market values the business not as a declining electric vehicle manufacturer, but on the stories that it will be a wildly profitable leader in humanoid robots, energy storage, self-driving, and robo-taxis. 

Except, much of this is pie in the sky and the real business is declining. 

As a final word of warning, Tesla is also largely a sentiment-driven stock, but that works two ways and any reversal could be brutal. 

Think of it this way. If a Qantas (ASX: QAN) pilot turns up to a boarding gate dressed in the airline's smart uniform the passengers have great confidence he can fly the plane.

However, if the same pilot turns up dressed as a clown many people would lose faith, even though it's the same pilot with the same flying abilities. Therefore once the faith that humans instinctively rely on goes, the downturn in sentiment-based stocks can be faster than you think.

What do you think about the Tesla stock price? Feel free to comment below.