Tesla: Some Analysts Are Calling for A 30% Drop—Time to Panic?

Key Points

• Next week’s earnings report could decide whether Tesla’s rally continues into year-end, or collapses.
• Several analysts now see as much as 30% downside from current levels. 
• However, bullish voices argue the stock’s long-term AI and robotics story remains intact.

Tesla Inc. NASDAQ: TSLA has once again found itself at the center of a fierce market debate. After rallying almost 100% since April, the stock has stalled below recent highs and is now trading around $430. With third-quarter earnings due next week, investors are wondering whether this consolidation is healthy or a warning sign. Some analysts have begun openly calling for a sharp correction, while others remain convinced the long-term story is intact.

Either way, the pressure is on. With a price-to-earnings (P/E) ratio near 250, Tesla’s valuation leaves very little room for disappointment. With the stock struggling to extend its breakout and macro fears about a bubble in tech stocks spreading, this earnings report could be the one that defines how the rest of the year plays out. Should investors be getting worried? Let's jump in and take a closer look. 

The Bear Case Is Getting Louder

The latest call for caution came from the teams at Industrial Alliance Securities and Evercore ISI, both of which issued updates with fresh price targets of $300 for Tesla shares. A recent close around $430 implies roughly 30% downside based on some bearish targets—a bold call with earnings just around the corner. There's a growing consensus that the stock’s valuation may be stretched, with Tesla facing increasing pressure to defend its market share amid intensifying competition.

Tesla’s margins have been under pressure for several quarters now as price cuts continue across its lineup. Although the company delivered a strong Q3 sales report, investors were quick to fade the move, a sign that expectations are already maxed out. Many are also questioning whether the company’s robotaxi and full self-driving promises will meaningfully boost profits anytime soon.

There’s also a sense that the recent consolidation is eerily similar to past peaks. Disappointing results in Q1 brought an end to a preceding rally of comparable magnitude. The concern is that sentiment has again become stretched, and even a good quarter might not be good enough.

Why the Bulls Aren’t Backing Down

However, despite this renewed pessimism, many in the bullish camp are holding firm. This week alone, Melius Research reiterated its Buy rating and set a $520 price target, implying around 20% upside. Royal Bank of Canada also maintained its bullish view, citing the company’s long-term growth potential in AI and robotics, and especially the development of its Optimus humanoid project.

Their argument is straightforward: Tesla isn’t just an automaker, it’s a platform company that integrates energy, software, and artificial intelligence. Its global delivery scale, brand strength, and vertical integration still give it a competitive moat that rivals can’t replicate.

Bulls also highlight that even during pullbacks, Tesla has historically found support from long-term investors who treat volatility as a buying opportunity.

The Real Risk Is Expectations, Not Execution

The real question for Tesla investors isn’t whether the company is executing well; it’s whether perfection is already priced in. A P/E ratio of 250 means investors expect Tesla to keep growing earnings at extraordinary rates for years to come, which is a tall order, to put it nicely, in a cyclical, capital-intensive industry.

Combined with the eye-watering rally in recent months, and even a slight disappointment, such as slower margin expansion or cautious forward guidance, could lead to rapid selling. 

The fact that the stock hasn’t made new highs in weeks suggests that traders are increasingly hesitant to chase. In a year when broader market optimism has already stretched valuations across tech, Tesla is starting to look particularly exposed.

What to Watch in Next Week’s Report

Looking ahead to next week, investors will focus on several key points. First, whether Tesla’s automotive gross margins have stabilized after several quarters of decline. Second, if there are any positive updates on the path to revenue for its robotaxi and Optimus initiatives. Third, insights on regional trends, especially in Europe and China, where competition has been intensifying. 

The bullish narrative could easily regain control if earnings confirm that Tesla’s core business remains strong and new growth levers are progressing. But if margins disappoint or forward guidance looks soft, those $300 targets from Evercore and Industrial Alliance could start to look less extreme.

Investors shouldn’t panic, but they should consider tempering expectations. Tesla remains an impressively resilient company with unmatched brand power and innovation depth. Still, the stock’s valuation and recent trading behavior suggest that easy money might already have been made.