Key Points

Tesla shares trade at an alarmingly steep valuation even as the business itself faces challenges. Yet, one luxury carmaker continues to put up strong results during an uncertain economic period. Shares of Ferrari aren't cheap, but given the quality of the company, it might not matter to investors. 10 stocks we like better than Ferrari ›

It's hard to argue with how Tesla has generated monster wealth. Just in the past five years, its shares are up an astonishing 523% -- and that's even as they trade 30% below their peak.

Investors looking to buy the dip might be eyeing Tesla right now to add to their portfolios. However, it's worth highlighting the current price-to-earnings (P/E) ratio of 184, which demonstrates how much optimism investors still have about the company's future. This does not provide any margin of safety.

All hope isn't lost, though. There's another option out there. Meet the supercharged auto stock that's a better buy than Tesla: Ferrari(NYSE: RACE). Image source: Getty Images.

Navigating trade uncertainties

There's no denying that ongoing trade wars add a lot of uncertainty for automakers. However, Ferrari continues to drive in the fast lane. Its latest financial results prove this.

During the first quarter of 2025, the manufacturer of super-luxury cars posted revenue growth of 13%. That top-line figure grew at a double-digit clip even though vehicle shipments increased by just 1%. As is typically the case, Ferrari benefited from a favorable product mix. Management also called out "continued demand for personalizations."

Profitability is trending even better than revenue. Diluted earnings per share jumped 18% in Q1. Ferrari plans to launch six new models in 2025 and will reveal its first ever fully electric vehicle. That should keep consumer demand strong.

Like others in the industry, tariffs are top of mind for Ferrari's leadership. Ferrari cars that are imported into the U.S. will be impacted. But the business has the rare ability to raise prices to offset any higher costs that it might face. That should ease concerns for investors.

True luxury

What sets Ferrari apart from mass-market car companies is that the brand is truly in a league of its own. At the end of the day, this is a luxury business more than it is an auto manufacturer. The brand's positioning goes back to Enzo Ferrari, the company's founder, who said that the business would always sell one less vehicle than the market demanded.

That scarcity defines Ferrari. It's not about boosting volume to sell as many units as possible. It's all about protecting the brand's image. And the brand's strength drives incredible pricing power. Ferrari sometimes sells exclusive limited-edition models that can cost upward of $1 million. However, they still face robust demand from consumers who view these cars as must-have collectible items.

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That pricing power shows up in Ferrari's profitability, which is unbelievable. In Q1, the gross margin and operating margin came in at 52% and 30%, respectively. You'd be hard-pressed to find other businesses in the auto industry that come close to these stellar figures.

It seems everyone is worried about a possible recession. But Ferrari caters to some of the wealthiest people in the world, those who might not be as exposed to the state of the economy. This somewhat insulates the business, making it much less cyclical.

Premium valuation

As mentioned, Tesla shares trade at a nosebleed P/E ratio of 184. For a business whose automotive revenue declined 20% year over year in the latest quarter, this is an expensive valuation. What's more, Tesla's Q1 operating margin of 2.1% is well below what it was in the first quarter of 2024. The company is struggling, which doesn't justify what investors are currently being asked to pay.

At a P/E ratio of 51.9, Ferrari shares aren't exactly cheap, either. However, I still believe the stock is a better buy. The fundamentals have proven to be much more durable than Tesla's. And the luxury car maker's financial performance speaks for itself.

Should you invest $1,000 in Ferrari right now?

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

Meet the Supercharged Auto Stock That's a Better Buy Than Tesla was originally published by The Motley Fool

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