Will the Tesla Share Prices Fluctuate Upward or Downward by 2025?
Tesla (dropping 3.46% as TSLA) has been a major shocker in 2024's market.
For most part of the year, the stock lagged behind, reporting below-par quarterly results featuring sluggish growth and profit drops. Furthermore, the surge in electric vehicle (EV) sales has slowed down as the market seems to be hitting a plateau, with early adopters already owning an EV. Consequently, the overall performance of EV stocks has been lackluster in 2024.
Up until October 23, the stock had plunged 14% year-to-date, significantly underperforming the S&P 500, which had rallied 21%, as demonstrated in the chart below.
However, a dramatic turnaround ensued post-October. Tesla captured investor's attention once again with its third-quarter earnings report, which boasted impressive profit growth, and CEO Elon Musk expressed optimism for a 20-30% increase in vehicle production in 2025, compared to a flat growth in 2024.
Following this, Tesla saw a significant surge in value as investors gained confidence that the Trump administration will make it easier for the company to launch its new Cybercab, or robotaxi. Alongside, Tesla plans to introduce an affordable Model Q, priced under $30,000, in the first half of 2025. As displayed in the chart below, the stock has skyrocketed 125% within a mere two months since December 17.
Entering the new year, Tesla carries immense momentum. However, questions remain regarding the stock's future trajectory.
Exorbitant Expectations turned into Reality?
Tesla's stock had already attracted premium valuation prior to its upturn, but with the current surge, its valuation appears detached from the actual business. The stock trades at a price-to-earnings ratio of 200, which is significantly more expensive than any of the "Magnificent Seven," none of which trade above a P/E of 51.
At such high pricing, Tesla will find it challenging to meet investor expectations, as the company sells approximately 2 million vehicles annually. These expectations are largely tied to Mr. Musk's predictions for Tesla's autonomous vehicle business, as he anticipates Tesla to be the most valuable company in the world if its robotaxi marketplace finally takes off. One must remember that the Cybercab is yet to enter production, and the company faces numerous regulatory hurdles. It is indisputable that self-driving cars may not entirely replace traditional rideshare services, like Uber, as envisioned by Mr. Musk.
How much truly beneficial will Trump be?
Tesla's stock value has nearly doubled following the election, with Mr. Musk's favorable views towards the Trump administration playing a significant role. Mr. Musk had financially supported the Trump campaign and shared the stage with him multiple times. Moreover, he has been assigned to head the Department of Government Efficiency, where he will scour for government waste.
However, Mr. Musk and Trump seem to have different interests in some aspects. Firstly, Trump is recognized for his support of fossil fuels over green energy, and his administration has proposed doing away with the $7,500 EV tax credit. Mr. Musk has downplayed the impact of such a decision, but eliminating this incentive may shift some demand towards conventional combustion vehicles for cost-conscious consumers, which would negatively impact Tesla.
The opportunity lies in autonomy, and the Trump administration has also indicated a willingness to ease regulations regarding self-driving cars and establish a national standard, making it simpler for Tesla to roll out the Cybercab, which has no steering wheel.
Safety, however, will be the ultimate test for any self-driving vehicle, and if the cars are granted permission to hit the roads before they're fully prepared, it could result in a catastrophe for both Tesla and the Trump administration.
Is Tesla a worthwhile investment for 2025?
Tesla exudes an unpredictable aura, and its stock is notoriously volatile.
Entering the new year, Tesla is essentially priced for a flawless performance at the current valuation. Autonomy might not have an immediate impact, as the company doesn't plan to manufacture the Cybercab in 2026, but signs of progress could drive the stock higher.
Instead, investor focus will be on the core product, the Model Q vehicle, and the Trump administration's capability to potentially assist the company.
Despite the current investor hype, Tesla seems more likely to underperform than excel in 2025, given its current market cap of $1.5 trillion and an astonishingly high P/E ratio of 200.
In light of Tesla's impressive third-quarter earnings and Elon Musk's optimistic predictions, many investors are turning to finance and investing in Tesla stock, hoping to capitalize on its potential growth. However, with a price-to-earnings ratio of 200, it remains to be seen if Tesla can meet such high investor expectations.
Given that the Trump administration has proposed eliminating the $7,500 EV tax credit, some analysts question if this could negatively impact Tesla's cost-conscious consumers and shift demand towards traditional combustion vehicles. On the other hand, the Trump administration's willingness to ease regulations regarding self-driving cars and establish a national standard could potentially aid Tesla in rolling out the Cybercab, which could further boost investor interest.
In conclusion, while Tesla remains an unpredictable and volatile investment option, decisions regarding finance and investing in Tesla stock will heavily depend on how the company navigates the regulatory environment, meets investor expectations, and competes in the market with its upcoming affordable Model Q and the Cybercab.
