Tesla's stock price fell sharply this week, declining more than 4% on Wednesday and closing at $406.01, extending a period of recent weakness. The drop occurred despite the company reporting solid fourth-quarter earnings that beat analyst expectations, with earnings per share of $0.50 versus an estimated $0.45 and revenue of $24.90 billion topping forecasts of $24.75 billion.
The primary driver of the sell-off appears to be investor anxiety over Tesla's sky-high valuation. The stock's price-to-earnings (P/E) ratio has climbed near 400, a level that makes the stock vulnerable to significant selling pressure on any perceived disappointment. Trading volume surged 15% above average to 73.5 million shares during the decline.
Wall Street analysts remain deeply divided on the stock's prospects. The consensus rating is currently a "Hold" with an average price target of $403.92. Wolfe Research analyst Emmanuel Rosner, while describing 2026 as a "catalyst-rich year ahead" for Tesla, lowered the firm's 2026 earnings per share forecast to $1.60 from $1.85 and cut its 2027 estimate to $2.17 from $2.37. These projections are below the broader Wall Street consensus of $1.99 for 2026 and $2.63 for 2027, reflecting concerns over margins, pricing pressure, and heavy investment requirements.
Long-term optimism centers on Tesla's artificial intelligence (AI) and autonomous vehicle ambitions. Wolfe Research's analysis projects that Tesla's future robotaxi business could generate $250 billion in annual revenue by 2035, potentially supporting about $2.75 trillion in equity value. Key near-term catalysts highlighted include the planned launch of the Optimus humanoid robot in Q1 2026, the introduction of the Cybercab in April, and further updates to the Full Self-Driving software.
Investor attention has also intensified around CEO Elon Musk's broader technology ecosystem. Following Musk's confirmation that his aerospace company SpaceX will merge with his AI startup xAI, speculation is growing that Tesla could eventually be merged with SpaceX and xAI within the next 12-18 months. Wedbush analyst Dan Ives stated that Tesla appears to be positioning itself to combine with Musk's other ventures to create a "long-term AI juggernaut" focused on "Space and Earth together."
Notable market activity included prominent investor Cathie Wood's ARK Invest buying the dip. Through the ARK Space Exploration ETF, the firm purchased 35,766 Tesla shares worth approximately $15.09 million on the day of the decline. This bullish move contrasted with significant insider selling; directors and insiders sold 119,457 shares worth $53.5 million over the past 90 days, including sales by James R. Murdoch and Kimbal Musk.
Amid the stock pressure, Tesla announced a $2 billion investment in xAI, signaling deeper integration of AI technology. Positive data from China, where wholesale sales rose roughly 9% year-over-year in January, provided a counterbalance to broader concerns.
