In the face of collapsing car sales, Tesla TSLA stock has remained elevated into early 2026 on investor expectations that the company’s robotaxi ambitions will succeed. But ahead of Tesla’s fourth-quarter earnings release, Morningstar sees the stock as overvalued. In the longer term, how big are the risks if robotaxis and humanoid robots don’t pan out?
Tesla is scheduled to release its fourth-quarter earnings report on Jan. 28, after the market close. Morningstar analyst Seth Goldstein will be paying close attention to the firm’s lower sales and its affect on automotive gross margins. In addition, he hopes to hear updates on the company’s 2026 plans for robotaxi expansion, the commercialization of humanoid robots, and full self-driving software adoption rates.
Shares of the stock have volatile over the past several months, falling 6% in October 2025 and 15% in November after third-quarter earnings before rebounding in December on optimism about robotaxi progress. The stock fell 4% in early January after a decline in fourth-quarter deliveries, plus news about autonomous driving competition from Nvidia.
Even so, Tesla trades near year-ago levels, as enthusiasm for robotaxis has largely outweighed concerns about slowing vehicle sales. “There’s a lot of assumed success priced into Tesla right now, as well as the global growth of full self-driving software and potentially the global growth of the robotaxi business,” Goldstein says. “If you are very bullish on that, then the valuation makes sense, but we think the market’s gotten a little ahead of itself.”
Even as the stock has remained elevated, Goldstein says investors may be overly optimistic. Tesla still has challenges to face before it can scale its robotaxi business, including stiff competition from other big tech firms, a complex regulatory landscape, and declining sales of its standard electric vehicles.
What’s Driving Tesla Stock?
Tesla’s recent moves have been driven far more by expectations for its robotaxi business than by its core auto business. “The market understands deliveries are not going to do well, likely falling for a third straight year in 2026,” Goldstein says. He thinks investors are looking past the current weak vehicle sales and focusing instead on whether Tesla can meet key regulatory requirements to expand autonomous vehicles longer term.
Going forward, “If we don’t see expansion into new cities, or if we see the safety drivers remaining in the vehicles longer than expected, that would be a sign to the market that the software is not developing as quickly as they thought, and then we might see the stock fall,” Goldstein says.
Morningstar currently models a full robotaxi rollout in 2027 or 2028, later than Tesla’s guidance, reflecting both software changes and regulatory uncertainty.
What Needs to Happen Before a Full Robotaxi Launch?
Goldstein says Tesla must prove its system can operate safely without human intervention and navigate a fragmented regulatory landscape. “The software needs to be able to work, and to work well enough to keep everyone safe and avoid accidents, and to not need Tesla employees in the vehicle,” he explains.
He adds that regulation remains a major obstacle: “We need to see Tesla be able to navigate the autonomous vehicle registrations, which right now is a patchwork of different states and cities. The US federal government wants to roll out its own regulatory standards. Right now, there are none for autonomous vehicles.”
Tesla recently began testing robotaxis in Austin without safety monitors inside the vehicles—a step Goldstein views as meaningful for the long-term rollout. “Tesla’s investing heavily right now. That’s generating negative cash flow today. But the hope is that eventually Tesla rolls out a robotaxi service that quickly scales and then they start to generate meaningful positive free cash flow.”
Goldstein believes robotaxis could ultimately generate stronger margins than today’s ride-hailing platforms: “If Tesla decides to own their own [autonomous] vehicles, they’re not going to have to pay a driver, so you get the full fare. They can get two different revenue streams from one ride.” That said, he expects profits to be lower than what the current stock price implies as competition pushes down fares over time.
Tesla Faces Stiff Competition In a Developing Landscape
Tesla faces competition from Alphabet’s Waymo, Amazon-backed Zoox, traditional automakers, and potentially Nvidia. Goldstein says the firm’s biggest technical vulnerability is its camera-only approach. “Tesla is one of the only autonomous vehicle companies that’s going to go camera only. That also means there’s a lot of these weird test cases that the software currently cannot handle.”
He warns that rivals experimenting with additional sensors, such as light detection and ranging (LiDAR), which uses laser light to create detailed 3D maps, and radio detection and ranging (RADAR), which uses radio waves to detect objects, could advance more quickly. “If someone else is able to figure out how to seamlessly blend the LiDAR and RADAR, Tesla could ultimately not be successful or not be able to gain as much market share as what’s currently priced into the stock,” he says.
Will Demand for Electric Vehicles Keep Declining?
Morningstar expects deliveries of Tesla’s electric vehicles to remain weak in 2026, weighed down by the expiration of the US EV tax credit, rising competition in Europe, and relatively high vehicle prices.
In the United States, Goldstein says Tesla must convince buyers its software justifies a premium: “Tesla’s going to have to make the case that its software is a differentiator and a reason for consumers to pay up.”
In Europe, Tesla’s full self-driving software is still awaiting regulatory approval, which Goldstein says would be a major catalyst. “If we see the full self-driving software approved, I think that similarly to what we saw in China last year, we would see Tesla sales quickly catch up,” he says.
At the same time, CEO Elon Musk’s political activity remains a demand risk in Europe. “Potentially some of the sales decline in Europe is due to backlash against Musk’s campaign for the far-right German party,” Goldstein says.
Globally, Tesla has been overtaken by China’s BYD Auto, now the world’s largest seller of electric vehicles by volume. “Tesla’s still playing what I call the entry-level luxury space,” Goldstein says. “BYD had EVs in all market segments … that’s where the higher volumes are.”
What’s the Outlook for Tesla Stock?
Goldstein says his outlook would strengthen only if Tesla proves successful in both robotaxis and its humanoid robot project, Optimus. “I’d want to see robotaxi get more confidence … and see the potential for either quickly growing Tesla volumes or licensing their full self-driving software to other automakers,” he says.
Secondly, “I want to see what Optimus does, I’m a little skeptical today, but if it turns out they can sell millions of Optimuses per year, that’s a lot of software subscription revenue that’s at a high profit, high free cash flow.”
For now, Goldstein remains cautious, and Tesla stock is in two-star overvalued territory. “There’s going to be a lot of competition there,” he says of autonomous driving. “Even if Tesla’s successful, they may not be the only player in town.”
Fair Value and Profit Drivers
Here’s what Goldstein has to say about the stock’s fair value estimate:
We maintain a $300 fair value estimate for narrow-moat Tesla. At recent prices, the stock has traded roughly 40-60% above that level, placing it in 2-star territory.
We forecast vehicle deliveries to rise to about 2.9 million units annually by 2030, up from 1.64 million in 2025, driven primarily by the Model Y and Model 3. Higher-end and niche models, including the Model S, Model X, Cybertruck, Roadster, and Semi, are expected to total roughly 50,000 vehicles per year.
Profitability is expected to recover gradually after recent price cuts. We project automotive segment gross margins returning to mid-20% range by the end of the decade, up from about 18% in 2024 but still below the 29% peak in 2022.
Tesla’s energy generation and storage business is forecast to grow revenue at nearly 30% annually over the next 10 years, driven by demand for large-scale battery storage systems. Analysts expect falling costs to largely offset declining systems prices, limiting pressure on margins.
To fund expansion in autonomy, we estimate Tesla will spend more than $100 billion in capital expenditures over the next decade. While these investments could support long-term cash flow, we believe the current stock price reflects a more optimistic robotaxi outcome than its base-case forecast.
TSLA Bulls Say
- Tesla could disrupt multiple industries with its technology for EVs, AVs, batteries, and humanoid robots.
- Tesla will see higher profit margins as it reduces unit production costs over the next several years.
- Tesla’s full self-driving software should generate growing profits in the coming years as the technology continues to improve, leading to a robotaxi service, increased adoption by Tesla drivers, and licensing from other auto manufacturers
TSLA Bears Say
- Traditional automakers and new entrants are investing heavily in EV development, which will result in Tesla seeing a deceleration in sales growth and being forced to cut prices due to increased competition, eroding profit margins.
- Tesla’s large investment in autonomous driving software will be value-destructive, as the robotaxi product will face delays and competition from Waymo, which already offers a robotaxi service.
- Tesla CEO Elon Musk’s political activities will turn consumers away from buying Teslas in key markets, including the US and Europe, leading to lower sales and profits.