It has been a painful start to 2026 for Tesla (TSLA 1.82%) investors. With shares trading at about $356 as of this writing, the company has lost more than a fifth of its value since the start of the year.

A decline of this magnitude might look like a tempting entry point. But is this pullback a genuine buying opportunity, or could shares of the electric-car maker fall even further? Ultimately, I think a strong case could be made for the stock going significantly lower.

The growth stock‘s valuation is expensive no matter how you look at it — and the core business is showing signs of real financial strain.

Shrinking margins and a sky-high valuation

For investors looking for a reason to be optimistic about Tesla stock, the company’s recent financial results certainly don’t help. Indeed, the company’s profitability is heading in the wrong direction. Tesla’s fourth-quarter operating margin contracted to 5.7% from 6.2% in the year-ago quarter. And its earnings per share plunged 60% year over year to $0.24. Even on a non-GAAP (adjusted) basis, earnings per share fell 17% to $0.50.

For the full year of 2025, Tesla generated just $1.08 in earnings per share (down 47% year over year). Based on its current stock price, that gives the company a staggering price-to-earnings ratio of about 330. A multiple like that requires near-perfect execution and rapid bottom-line growth. Instead, profits are shrinking as the company navigates aggressive global competition and pricing pressure.

Deliveries under pressure

While Tesla bulls often focus heavily on the promise of robotics and autonomous driving, Tesla’s core automotive operations are navigating a challenging stretch.

Full-year vehicle deliveries fell 9% year over year, and full-year automotive revenue declined 10% year over year.

Even more, this challenging environment for vehicle deliveries is expected to persist. Wall Street analysts are, on average, expecting the company to report about 366,000 deliveries for the first quarter. While that would represent an 9% increase from the 336,681 vehicles delivered in the year-ago quarter, that prior-year period was artificially depressed by factory retooling. More concerning is the sequential trend: 366,000 deliveries would represent a steep 13% drop from the 418,227 vehicles the company handed over to customers in the fourth quarter.

Capital-intensive bets

Additionally, management is investing heavily in next-generation growth technologies — specifically, autonomous driving, custom chips, and humanoid robots. While this creates long-term growth opportunities for Tesla, it also increases the risk profile.

The company’s capital expenditures topped $8.5 billion in 2025, and management expects to spend even more in 2026 to build out its infrastructure.

These are bold projects, but they could quickly become capital-intensive commodities. Right now, there is no clear proof that these investments will achieve high returns on invested capital over the long haul.

With that said, there are some things to be optimistic about. Tesla’s rapid growth in its full self-driving subscriptions, for instance, is encouraging. Tesla’s active supervised full self-driving subscriptions topped 1.1 million in Q4 — up 38% year over year. Further, the company’s energy storage division is booming, having deployed a record 46.7 gigawatt-hours (GWh) in 2025, a 49% year-over-year increase.

Today’s Change

(-1.82%) $-6.58

Current Price

$355.25

How far could Tesla stock fall?

Ultimately, however, I think Tesla’s latest growth initiatives add just as much risk as they do opportunity — at least for now. For this reason, I think the stock should be judged primarily on the core electric-vehicle business and the areas of strength already evident: momentum in supervised full self-driving subscriptions and its energy storage business. On this basis, I think the stock looks significantly overvalued, and I wouldn’t be surprised if shares lost about half of their value.

Of course, I could be proved wrong.

If Tesla’s newer initiatives prove to be high-margin, defensible, and accretive to earnings and free cash flow, we could be near the bottom for the growth stock. But there are real risks to consider, including the possibility that competitors will reach scale in the autonomous space first, or that macroeconomic headwinds will further depress consumer demand for big-ticket purchases. Until the financial payoff of these ambitious projects becomes clearer, the combination of shrinking margins and an astronomical valuation makes it difficult for me to get excited about the stock at this price.