Despite trading being in the red for most of 2024, Tesla(NASDAQ: TSLA) The shares now stand at a year-to-date return of 56%. Most of those gains came after Trump won re-election on November 5, as Elon Musk’s money and influence were a big part of getting his campaign over the line.
Investors speculate that the incoming Trump administration will regulate technologies like autonomous driving with a relatively light touch, paving the way for huge financial opportunities for Tesla.
In fact, Cathie Wood, founder of Ark Investment Management, believes Tesla stock is the world’s largest artificial intelligence (AI) because of the company’s fully self-driving (FSD) software and Cybercab robotaxi. But she is not the only one who is extremely optimistic.
In the past month alone, Wedbush Securities and Bank of America have raised their price targets for Tesla stock to $400, with an analyst at Stifel raising his price target to $411.
The majority of Tesla’s revenue comes from sales of electric passenger cars (EVs), but the company’s robotaxi platform could change that completely. Elon Musk recently abandoned plans to launch a low-cost passenger EV, which would have helped the company compete with Chinese manufacturers, and is instead shifting resources to the Cybercab.
The Cybercab doesn’t come with pedals or even a steering wheel, as it runs entirely on Tesla’s FSD software. Musk plans to build a ride-hailing network in which the Cybercab can operate 24 hours a day, allowing Tesla to generate revenue by transporting passengers. Consumers will also be able to purchase Cybercabs and operate their own fleets.
FSD’s financial possibilities extend beyond the Cybercab. Owners of Tesla’s passenger car EVs can purchase the software on a subscription basis, and Musk also floated the idea of ​​licensing the technology to other automakers.
Tesla is a $1.2 trillion company at the time of writing, but according to Ark Invest, its valuation could rise to $8 trillion by 2029 due to FSD and the Cybercab.
That said, unsupervised FSD is not currently approved for use in any US state, so there are still regulatory hurdles to clear before Tesla can capitalize on this financial opportunity. The path to approval may be easier under the Trump administration, but the Cybercab won’t go into production until 2026.
Therefore, it’s not a good reason to invest in Tesla stock today, especially in light of the next two headwinds.
Image source: Tesla.
Tesla’s passenger car EV sales have grown every year since the launch of its flagship Model S in 2011. It led to a spectacular run for the company, expanding its fleet to include the Model 3, Model Y, Model X and Cybertruck.
However, signs of trouble emerged in 2023. The company’s order book has been steadily declining due to increasing competition, combined with declining demand due to challenging economic conditions. It still delivered a record 1.8 million electric vehicles for the year, which was a 38% increase from 2022, but that growth rate was disappointing compared to Musk’s 50% forecast.
The picture continues to deteriorate. During the first three quarters of 2024, Tesla delivered 1.29 million cars, representing a growth of 2.3%. drop compared to the same period last year. That means the company is on track for its first annual sales decline since it started shipping the Model S more than a decade ago.
Cheap electric vehicles from manufacturers in countries like China are becoming a real threat. BYDfor example, launched an EV called the Seagull, which sells for less than $10,000 domestically and is about to enter Europe. Tesla has a large presence in both China and Europe, so sales could fall even further, especially after abandoning its own low-cost EV project.
Musk thinks deliveries will rebound with growth of between 20% and 30% by 2025, but it’s completely unclear where demand will come from.
Tesla has cut the price of its cars by 25% (on average) in 2023, and electric car prices have generally fallen further this year. That puts serious pressure on the company’s profits: earnings per share (EPS) fell 32% in the first three quarters of 2024 alone, compared to the same period last year.
Which brings me to perhaps the biggest reason to pump the brakes on Tesla stock right now. Based on trailing-twelve-month earnings per share of $3.65, it trades at a price-to-earnings (P/E) ratio of 106.6. That is triple the price/earnings ratio of the Nasdaq-100 index, which includes many of Tesla’s big tech peers.
In fact, Tesla shares are significantly more expensive than all other US tech stocks with a valuation of $1 trillion or more. doubleNvidia‘s price/earnings ratio:
TSLA PE ratio data according to YCharts
Can FSD and the Cybercab Transform Tesla’s Financial Results? Absolute. But it’s going to take year. If the Cybercab is in production in 2026, investors likely won’t see real revenue until 2027 and 2028. That assumes FSD gets regulatory approval and consumers actually do want to to use autonomous robotaxis. None of these things are guaranteed.
Finally, considering Tesla’s current stock price is around $390, the Wall Street price targets I mentioned earlier hardly represent any upside from here. As a result, now doesn’t seem like a good time to rush into Tesla stock, and the picture probably won’t look very different in 2025 either.
If our analyst team has a stock tip, it could be worth listening to. After all, Stock Advisors the total average return is 916% – a market-shattering outperformance compared to 177% for the S&P 500.*
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*Stock Advisor returns December 9, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool recommends BYD Company and recommends the following options: long calls in January 2026 for $395 at Microsoft and short calls in January 2026 for $405 at Microsoft. The Motley Fool has a disclosure policy.
Tesla Stock Could Be the Ultimate Artificial Intelligence (AI), But There Are Two Reasons to Avoid It Heading to 2025 was originally published by The Motley Fool
