Quora Answer: How Much Net Income Should Tesla Consistently Make Year over Year to be Valued at US$1 Trillion?

The following is my answer to a Quora question: “How much net income should Tesla consistently make, year over year, to be valued at US$1 trillion?”

You are looking at fairy-tale numbers here.  A company’s valuation does not depend on earnings alone.  Demand for the stock sets the price.  That demand rests on the assets, the projected earnings, and investors’ faith in the management and the business model.  I called a trillion-dollar Tesla a pipe dream.  Tesla has since passed that mark.  The earnings have not followed.

The Numbers

Tesla’s market capitalisation is about US$1.46 trillion, according to Yahoo Finance.  Trailing twelve-month revenue is US$103.62 billion.  Trailing net income is US$3.81 billion.  Earnings per share are US$1.07.  The price-to-earnings ratio is 346.  The Nasdaq-100 trades at about 32.  The Motley Fool calculates that Tesla trades at 13 times trailing sales, against 3.7 for the S&P 500.  The net profit margin is 3.67 per cent.

Compare Toyota Motor Corporation: In the year to 31^st March 2026, Toyota booked revenue of US$335.7 billion and net income of US$25.5 billion.  It sold 9.595 million vehicles.  Toyota earns nearly seven times Tesla’s net income on about three times the revenue.  Its market capitalisation is about ¥25 trillion, or US$165 billion.  Tesla is worth nearly nine times the world’s largest carmaker.

BYD Takes the Market

BYD sold 762,478 battery electric passenger vehicles in the third quarter of 2026.  Tesla delivered 486,532.  BYD’s lead is 275,946 vehicles, or 56.7 per cent.  BYD’s sales grew 30.9 per cent year on year.  Tesla’s fell 2.1 per cent.  Over nine months, BYD sold 1,629,957 against Tesla’s 1,324,681.

Tesla beat the analyst estimate of about 462,000 deliveries, and the stock rose 5 per cent.  A European rebound drove the beat, while the United States and China weakened.  Tesla is still down 21 per cent this year, the worst performer among the megacapitalisation technology stocks.  It has posted two straight years of falling annual sales.

The Carbon Credit Subsidy is Gone

For years, Tesla sold regulatory credits to rivals who missed emissions targets.  The credits cost almost nothing to produce.  They added almost two points to Tesla’s gross margin a year ago.

The Trump administration ended the racket.  The federal EV tax credit expired on 30^th September 2025.  The budget law signed on 4^th July 2025 cut the penalties for missing fuel-economy standards to zero.  Rivals no longer need to buy anything.  Credit revenue fell to US$146 million in the second quarter of 2026, down 67 per cent from US$439 million a year earlier.  It is the lowest quarterly figure since 2020 and 0.6 per cent of revenue.  The line is not coming back.

The Second Quarter

Revenue hit a record US$28.24 billion.  Operating income fell 57 per cent to US$398 million.  The operating margin was 1.4 per cent.  Non-GAAP earnings were US$0.33 per share against the US$0.53 analysts expected.

Net income of US$1.11 billion needs a closer look.  A US$590 million gain in other income supported it, including mark-to-market gains on Tesla’s bitcoin holdings and currency effects.  More than half of the quarter’s net profit came from something other than selling cars.  I would call that a hedge fund, not a carmaker.  Investors saw through it.  The shares fell 14.5 per cent the next day, on record revenue.

The Shareholder Primacy Trap

The weakness has a cause.  Milton Friedman, the Nobel-winning economist, wrote in September 1970 that a corporation has one social responsibility: to increase its profits.  American boardrooms obeyed for fifty years.  The data show where the money went.

S&P 500 companies repurchased a record US$1.020 trillion of their own shares in the twelve months to September 2025.  They paid US$664.9 billion in dividends.  The combined payout was US$1.685 trillion.  Apple spent US$26.2 billion on buybacks in the first quarter of 2025 alone.  Toyota earned US$25.5 billion in a full year.  Apple bought back more of its own stock in one quarter than the world’s largest carmaker earned in twelve months.

Manufacturing paid the price.  Manufacturing is 10.3 per cent of United States GDP.  It is 24.9 per cent of China’s.  China produced about 30 per cent of global manufacturing value added in 2025, worth US$4.85 trillion.  The United Nations Industrial Development Organisation projects China at 45 per cent of global manufacturing by 2030.  It projects the United States at 11 per cent.

The pattern is changing, and the change is no comfort.  Goldman Sachs data shows S&P 500 buybacks grew 1 per cent in the first quarter of 2026 while capital spending rose 38 per cent.  Alphabet and Meta paused repurchases to fund artificial intelligence.  That capital is going into data centres and chips, funded increasingly by debt.  It is not going into factories, tooling, or the engineers who run them.

Tesla pays no dividend and runs no buyback.  Its shareholder primacy takes a different form.  The share price is the product.  Tesla’s board put that principle into a contract.  The 2025 CEO Performance Award grants Elon Reeve Musk, Chief Executive Officer of Tesla, up to 423.7 million shares across 12 tranches.  The first tranche needs a US$2 trillion market capitalisation.  The last needs US$8.5 trillion.  Robyn Denholm, the Tesla Board Chair, urged shareholders to approve it.  The proxy advisers ISS and Glass Lewis urged them to reject it.  More than 75 per cent voted yes in November 2025.  The package does carry operational milestones.  They include 20 million vehicles delivered and one million robotaxis in commercial service.  Tesla delivered 1,324,681 vehicles in the first nine months of 2026.

The capital follows the incentive.  Tesla shut the Model S and Model X lines to retool Fremont for Optimus, a robot that has not sold a single unit.  Vaibhav Taneja, Tesla’s Chief Financial Officer, confirmed capital expenditure above US$25 billion for 2026.  Tesla spent US$5.79 billion in the second quarter alone, mostly on Cybercab and Optimus.  Free cash flow was negative US$1.09 billion.

Meanwhile, Tesla has no US$25,000 to US$30,000 car to fight BYD.  A company run for manufacturing capacity would build the cheap car first.  A company run for the share price builds the story.  The market pays a 346 multiple for robots.  It would not pay that for a hatchback.

The Fairytale

Tesla’s valuation now rests on robotaxis and humanoid robots.  Musk said on the first-quarter call that unsupervised robotaxi revenue would not be “super material” this year.  We estimate Tesla runs 25 to 50 robotaxis.  Waymo runs 2,000 to 3,000.  A second Optimus factory targets production in summer 2027.

The Motley Fool calculates that Tesla’s earnings per share must quintuple, at a minimum, to justify the current price.  Goldman Sachs expects the robotaxi market to reach US$415 billion by 2035.  Tesla would need a large share of it, with a fleet a fraction of its rival’s.  Musk has a record of underestimating timeframes.

The Verdict

In 2018, I called Tesla’s shares overpriced.  Eight years later, the price is 346 times earnings.  The car business loses ground to BYD.  The subsidy that padded the margins is gone.  The profit is thinner than the headline suggests, and the cash flows out.  The pay package rewards market capitalisation, not a factory.  Shareholder primacy hollowed out American manufacturing for fifty years.  Tesla now applies the same logic to itself.

Tesla reports third-quarter earnings on 21^st October.  The report will show whether the delivery beat came with margin or with discounts.  A trillion-dollar valuation needs trillion-dollar earnings.  Tesla earns US$3.81 billion.

---

Terence Nunis | Executive Chairman, Equinox Zenith & Red Sycamore | Author, The 1% Playbook: The Billionaire Cheat Code