Tesla's Shares accomplish an uncommon feat after a three-year hiatus, prompting Wall Street analysts to forecast significant development in 2025.
Tesla (TSLA) saw a substantial surge in its stock price in recent times. The share price has almost doubled since the company declared its earnings on October 23, and it has soared over 70% since the United States presidential election on November 5. Factors contributing to this upward trend include favorable announcements during the recent earnings call and Elon Musk's close ties with President-elect Donald Trump.
Notably, Tesla's stock managed to achieve a new all-time high on December 11, 2024, a feat it hadn't accomplished since November 4, 2021. However, Wall Street experts forecast a correction, with the median 12-month price target of $275 implying a 37% downturn from the current share price of $436. This median value represents the midpoint, meaning that half of the 57 analysts monitoring Tesla expect share prices to fall more than 37% within the next year.
There are a few key aspects investors should keep in mind regarding this electric car manufacturer turned AI company.
Tesla exhibited promising financial results in Q3
Despite several disappointing financial reports, Tesla may have hit a turning point in Q3. Revenue increased by 8% to $25 billion, the gross margin improved by 195 basis points to its highest level since 2022, and non-GAAP net income grew by 9% to $0.72 per diluted share. Furthermore, Elon Musk hinted at potential deliveries boost of up to 30% in the following year.
The expansion of the gross margin is particularly noteworthy for Tesla. The company had to reduce its prices significantly in recent years due to low demand caused by high-interest rates. These price reductions hurt profitability. Tesla experienced a decrease in earnings in the first and second quarters this year and missed earnings estimates in the previous four quarters. However, with interest rates now declining, Tesla could be on an upward trajectory.
Although Tesla's market share dropped by 3 percentage points in 2024, it still accounted for a leading 17% of battery electric vehicle (EV) sales through October. This market share may increase in the coming year when it introduces a more budget-friendly model in the first half of 2025. Tesla's most significant opportunities, however, lie in AI and robotics.
Tesla has significant potential in autonomous driving technology and robotics
Elon Musk has repeatedly emphasized that fully autonomous vehicles were just around the corner, only to miss his predictions. Nonetheless, most analysts agree that self-driving cars are the future of the transportation and mobility industries, and Tesla is perfectly positioned to disrupt both sectors in the coming years.
Tesla boasted impressive improvements in its full self-driving (FSD) software this year, with a 1,000-fold boost in critical interventions. Tesla will introduce an unsupervised version of FSD and launch a ride-hailing service in California and Texas in 2025, which is expected to have significant implications for its business. Grand View Research predicts that autonomous vehicle sales will reach $214 billion by 2030, and Musk believes FSD can push Tesla's gross margin to 70%.
Beyond autonomous driving technology, Musk believes Tesla's humanoid robot Optimus will eventually become its most valuable product. He declared during the third-quarter earnings call that Tesla had the most advanced humanoid robot by a significant margin. Citigroup analysts anticipate humanoid robot sales will reach $209 billion by 2035, $1 trillion by 2040, and $7 trillion by 2050.
Some Wall Street analysts are very optimistic about Tesla
Gene Munster, the managing partner at Deepwater Asset Management, believes that Tesla will rank among the two major players in autonomous driving alongside Alphabet subsidiary Waymo. He went as far as to suggest that Tesla could eventually become a $3 trillion company earlier this year, implying a 114% increase from its current market value of $1.4 trillion.
Dan Ives, senior research analyst at Wedbush, views Tesla's FSD software as analogous to Apple's services business, enabling the company to monetize its hardware long after the initial sale. He also believes the connection between Musk and President-elect Donald Trump will yield regulatory changes favorable to autonomous driving technology.
Ives believes the 2025 debut of the unsupervised FSD software and autonomous ride-hailing services could generate enough excitement to propel Tesla to a $2 trillion market value before the end of the following year. In fact, Ives told CNBC in late November that Tesla was "the most undervalued AI name in the market."
Tesla stock appears excessively expensive at its current valuation
Wall Street analysts predict an annual growth rate of 28% for Tesla's earnings through 2025. Given this consensus, the current valuation of 180 times adjusted earnings seems excessively pricey. Personally, I recommend waiting for the stock's momentum to wane before investing in it. The stock has soared by more than 70% since early November. I would be surprised if it doesn't experience a pullback at some point.
However, existing shareholders should stay invested if they believe in Tesla's future with FSD software, autonomous ride-hailing services, and humanoid robots. The journey may be rocky, but Tesla could be significantly more valuable five years from now if it revolutionizes the mobility, transportation, and labor industries.
Tesla's Q3 financial results highlight promising improvements, with revenue and non-GAAP net income growth. This could potentially attract more investment in the company's stock. (finance, investing, money)
Given Tesla's significant advancements in autonomous driving technology and robotics, the company's future earnings potential is substantial. This could significantly impact the value of its stock. (finance, investing, money)
