“2025 was a crucial year for Tesla (NASDAQ: TSLA) as we expanded our mission and continued our transition from a hardware-centric company to a true AI company“, the company said in its full-year results last week. Tesla stock fell after the results were published, but by a fairly modest amount and not like a brick. The stock price is now 7% lower than where it started the year, but is up 4% over the past 12 months.

In other words, the market doesn’t seem to be terribly upset that Tesla is moving from…Device-centric business“(I think this means automaker for you or me) to”Physical artificial intelligence“Business (whatever that is).”

But I think that could have a significant impact on the long-term fair value of Tesla stock.

Doesn’t stand still

Tesla has made its reputation building electric cars. This also gave her experience in energy storage, so on the side she also developed a large business in large-scale energy generation and storage.

But it has always envisioned itself as a putative AI company. This has been demonstrated in various versions of self-driving software. This in turn has raised hopes for self-driving taxis: which have long been promoted, but have yet to be delivered on a large-scale commercial basis.

With its latest results, Tesla aims to reposition itself as an AI company with the capabilities to build hardware to support the use of such AI.

There is some credibility to this in my view, despite the exaggerated language. Tesla has software expertise and has long applied it to vehicles. The rollout of self-driving taxis has been slow but is making progress.

There is still a lot to prove

However, as of now, Tesla’s AI capabilities still need to be proven.

The launch of self-driving taxis so far is mainly an experiment. Robotics development is also still at a relatively early stage given the amount of work needed for successful large-scale commercialization.

Meanwhile, the company’s revenue declined last year on the back of a 10% decline in auto revenue. Operating margin fell sharply, at 4.6%, a far cry from the 16.8% achieved in 2022, since then it has declined annually.

Net income attributable to common shareholders was approximately halved (using GAAP as the basis for preparation).

Net cash generated from operating activities also declined slightly, although a strong improvement in free cash was a bright spot.

It is clear that the challenges faced by the automotive division have led to a decline in performance as a whole, given its dominant size. Energy generation and storage revenues improved by 27%.

A sophisticated novel

However, the company’s strategic response is to position itself more as an AI play than an automaker.

If that works, perhaps Tesla’s current stock price will be justified. Tesla has proven engineering expertise and sales capability.

But AI is a crowded place. Even some of Tesla’s competitors have as much right to win as it does, in my view: BYD It works well and beats Tesla easily. It is also working to develop its capabilities in the field of artificial intelligence.

To me, Tesla’s stock seems significantly overvalued at 388 times earnings. I see it as a car company struggling with increasing competition and the end of support from major US buyers.

Some of the AI ​​dreams sprinkled on top still can’t be justified, in my view. I have no plans to invest.