Tesla (NASDAQ:TSLA) has led the electric vehicle pack for over half a decade. This justifies TSLA stock’s huge valuation, over seven times revenue and 51 times earnings as trading opens on April 17. Earnings for the first quarter are due April 18.

But even assuming it earns 86 cents/share, that’s down 20% from last year on deliveries of over 422,000 cars.

Tesla is running faster and faster while doing less and less for investors. So why do they continue to pay up?

Mainly it’s batteries. But Tesla no longer leads there. The leader now is China’s CATL (OTCMKTS:PCRFY), which dominates on the materials side of the business and with which Tesla will build its next battery plant.

TSLA Stock: The Achilles Heel

It’s no big trick to build an electric car. It’s just a battery with wheels. Get the best batteries in quantity, and you win the race. This has long been Tesla’s secret sauce. It opened its first big battery plant seven years ago, and its annual “battery day” is a key date for the whole industry.

But Tesla’s strength is about to become a weakness. CATL’s M3P technology still uses lithium ion but replaces iron with a mix of magnesium, zinc, and aluminum, which is lighter. This delivers 15% more energy density and a range of over 430 miles per Tesla charge.

But CATL isn’t just supplying Tesla. It also supplies Volkswagen (OTCMKTS:VWAGY), Tesla’s biggest competitor in Europe. CATL is building a new plant for Ford Motor (NYSE:F) in Michigan. It’s CATL’s earnings that are now doubling year-on-year, not Tesla’s.

A Target on Its Back

Tesla’s marketing also has a target on its back. The company’s response has been a succession of price cuts, which clear inventory at the cost of margin. This may drive out smaller rivals like Rivian (NASDAQ:RIVN) and Lucid Group (NASDAQ:LCID), which focused on the high-end market. But it doesn’t wipe out mainstream automakers like Ford and General Motors (NYSE:GM).

The government is also no longer behind Tesla. Incentives under the Inflation Reduction Act are aimed at the mid-market. Not all Tesla products are eligible for subsidy under the new rules.

Democratic politicians are also slamming Tesla, and Musk’s management of Twitter is bound to turn off some potential buyers. This would be true regardless of Musk’s politics, described best as pro-Musk.

The Tesla Bulls

There remain TSLA stock bulls like Ross Gerber of Gerber Kawasaki, who see Tesla as far ahead of its competitors by any measure.

It is. But is it worth more than GM, Ford, VW, Stellantis (NYSE:STLA), Toyota (NYSE:TM), Nissan (OTCMKTS:NSANY), and BYD (OTCMKTS:BYDDF), its largest Chinese competitor, put together? Right now, it is. Will it be tomorrow?

The reason is most car stocks are priced at a fraction of their sales. Any sales of gas-powered cars have no investment value. The cost of converting to electric power is enormous, and most car companies won’t get there.

But even BYD is only valued at only 1.5 times last year’s sales of $61.7 billion (based on the current exchange rate). Geely owns Polestar and is worth less than 1.5 times its sales. Both have scaled electric car production. On a cost-per-sales basis, their valuations are one-quarter that of Tesla.

The Bottom Line

I can justify Tesla’s valuation advantage over companies that still make gas-powered cars. I can’t justify that advantage over those who are scaling the production of electric ones, especially with China now dominating electric battery technology.

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story.  The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.