Will Investing in Tesla Shares Be Wise in 2025?
Will Investing in Tesla Shares Be Wise in 2025?
Tesla (TSLA shedding -3.30%) had an impressive year in 2024, with shareholders reaping a 70% profit (as of Dec. 30).
A combination of positive factors, such as robust sales and Donald Trump's election as president, propelled the stock to unprecedented highs. As the year draws to a close, there's a question: should investors buy Tesla stock in 2025 based on its current standing? Let's delve deeper.
Climbing to the top as the leading EV manufacturer
The electric vehicle (EV) industry has witnessed a significant shift during the past decade as various countries address environmental challenges. Pioneers, like Tesla, have seized the opportunity to grab a substantial chunk of the market share from established players.
It's no surprise that Tesla now ranks as the primary EV car manufacturer in the U.S., accounting for approximately 50% of EV sales in 2024. Although Tesla's EV market share dropped from 75% at the beginning of 2022 due to industry giants closing the gap, it still maintains a significant market presence.
Tesla aspires to achieve even more – becoming the largest vehicle manufacturer overall. Its strategic plans include slashing prices, cutting costs to lead in cost efficiency, and launching an affordable EV model. These steps reveal Tesla's determination to realize its long-term vision.
In an announcement, Tesla CEO Elon Musk revealed his goal of selling 20 million cars annually by 2030, though some Tesla loyalists argue that the company might be focusing more on robotaxis than traditional car sales. Regardless, Tesla's ambition to dominate the automotive industry is bold and ambitious.
Fortunately, Tesla has recorded early signs that it is progressing towards its long-term objectives. For instance, in the third quarter of 2024, Tesla achieved its lowest cost of goods sold per vehicle ($35,100), boosted vehicle deliveries, lowered operating expenses, and improved gross profits by 1.95 percentage points year over year.
Although a single quarter's financial performance cannot predict future results, it indicates that Tesla is making positive strides towards its long-term target.
More than just an EV player
Initially a niche EV manufacturer, Tesla's expansion into other sectors like renewables, autonomous driving, and robotaxis has been remarkable.
Tesla's dedication to offering comprehensive commercial and residential energy-independence solutions—from solar panels and energy storage—has positioned it to capitalize on the burgeoning sustainability and eco-friendly trends.
Investment in artificial intelligence (AI) might prove to be a game-changer for Tesla, potentially accelerating products such as autonomous vehicles, robotaxis, and humanoid robots. Each product could generate tens of billions of dollars in the long run, if not more. Elon Musk even speculates that Tesla's humanoid robot, Optimus, could lead to a market cap of $25 trillion as the world embraces this technology in mass. (Currently, Tesla's market cap is approximately $1.4 trillion.)
Although it's unlikely that all these new ventures will yield the same level of success as the EV business, even one or two breakthroughs in these areas could create significant value for Tesla's shareholders.
Yet, a potential stumbling block may arise
Despite this optimistic outlook for Tesla's business growth, I cannot express the same for its stock value.
Investors' bullish sentiment has led to significant overvaluation of Tesla's stock. For instance, Tesla currently has a price-to-sales ratio of 16 and a forward price-to-earnings (P/E) ratio of 125. While Tesla's long-term goals are beyond question, investors questioning whether such a steep price tag is justified—especially considering the risk associated with yet-to-be-materialized high-stakes ventures.
Furthermore, Tesla's stock has shown impressive growth since Trump's election win, with investors expecting favorable treatment for Tesla due to Musk's close ties with the incoming president. However, these speculations are speculative and risky since it is challenging to predict how these relationships will impact Tesla.
Implications for investors
Tesla's future seems promising as it expands its EV business and explores new opportunities in robotaxis, robotics, and more. Existing shareholders, particularly those who bought stocks at lower prices, may wish to keep holding onto their shares in 2025.
However, buying Tesla stocks at the current high valuation might be too risky, even with promising momentum for continued price increases in 2025.
So, better to err on the side of caution.
Given Tesla's strong performance in 2024 and its ambitious plans for the future, investors may consider reinvesting their profits from the year into the company. However, the high valuation of Tesla's stock could make it a risky investment, particularly for those entering the market for the first time. Therefore, careful consideration of one's finance and risk tolerance is crucial before investing money in Tesla stocks.