Tesla(NASDAQ: TSLA) The stock is up 70% over the course of 2024, bringing the company to a market capitalization of more than $1 trillion. But the stock actually spent most of the year trading in the red; it did not gain momentum until Donald Trump won the presidential election in November.
Tesla CEO Elon Musk has put his cash and influence behind Trump’s campaign, and investors believe the company will benefit from lighter regulations from the incoming administration that could help fast-track AI-based fully self-driving (FSD) technology. :
FSD has the potential to transform Tesla’s economy, but the company faces a major challenge in the short term. Its electric vehicle (EV) sales fell in 2024, the first annual decline since Tesla launched the Model S in 2011. in the year
That’s a problem because Tesla’s stock is definitely expensive right now, and its current valuation is very hard to justify while its EV business declines.That’s why I think the stock will drop in 2025 and exit the trillion-dollar club.
Image source: Tesla.
Last week (Jan. 2), Tesla reported its production and delivery numbers for the fourth and final quarter of 2024. It delivered 495,570 electric cars to customers, which was below the Wall Street consensus forecast of 504,770.The company’s total shipments for the year came to 1.79 million, down 1.1 percent from 2023.
While Tesla’s stock has soared over the past year due to the potential of its FSD technology, EV sales still account for 79% of the company’s revenue, so if this part of its business isn’t performing, it’s hard to justify any further upside in the stock price (more on that later ).
Musk recently told investors that deliveries of the electric vehicle could grow by 20% to 30% by 2025, but he also said he was scrapping plans for a new low-cost model in the past few weeks. reports suggesting that Tesla is now planning to launch an affordable electric model called the Model Q sometime this year, along with a cheaper version of its popular Model Y together.
Tesla may struggle to grow sales without selling an entry-level EV as competition grows from low-cost manufacturers in countries like China. BYD:For example, it sells an EV called the Seagull for less than $10,000 in China, and it’s likely to enter Europe in 2025. China and Europe are important markets for Tesla, and since its cheapest EV currently costs around $30,000, it’s just can: do not compete.
The reason Musk wanted to scrap plans for a low-cost EV is because he wants Tesla to focus on autonomous EVs instead, like its new Cybercab robotaxi, which was unveiled last October will go into mass production in 2026.
The Cybercab won’t come with pedals or even a steering wheel, as it will run entirely on Tesla’s FSD software. Owners of Tesla’s passenger EVs can already use FSD in beta mode, but the company hopes to have it approved in California this year. and for completely uncontrolled use in Texas.Therefore having a friendly regulatory regime Could be so valuable to Tesla in the US.
Tesla plans to build its own ride network so that Cybercab can earn revenue by transporting passengers around the clock; Uber: except without human drivers.In addition, consumers will be able to purchase Cybercabs for personal use, or can purchase a fleet of them to run their own autonomous ride service through Tesla’s network.
Simply put, fully self-driving technology will create several new revenue streams for Tesla. Cathie Wood’s Ark Investment Management estimates the company will generate $1.2 trillion in annual revenue by 2029, with FSD and Cybercab will account for 63% of that total. Another leading Wall Street analyst, Dan Ives, also predicts that FSD will become $1 trillion over time. opportunity.
The main reason Tesla’s stock has fallen this year is its high valuation, which is not justified based on the current state of its business.
The company posted earnings per share (EPS) of $3.65 over the past four quarters, placing its stock at a price-to-earnings (P/E) ratio of 104. trillion or more except Broadcom:which is not a consistently profitable company (hence its P/E ratio is skewed);
Keep in mind that Tesla’s electricity supplies are down in 2024, and a shrinking business usually calls for a lower P/E ratio, not a higher one.And even if investors believe in products like FSD and robotaxi, Mass production of the Cybercab is not scheduled until 2026.
That means investors are paying a huge premium for Tesla stock in hopes of seeing meaningful FSD earnings for another two years. In fact, 2025 will likely look like 2024, meaning Tesla- A large part of the company’s financial results will depend on EV sales.
Tesla’s market cap is currently $1.2 trillion, so it only needs to drop 16% to fall out of the trillion dollar club % only to sell in line with its P/E ratio Nvidia:For example, a P/E ratio that would result in a market cap of about $630 billion.
When our analyst team has a stock tip, it can pay to listen. Stock consultant the total average return is 903%, a market-crushing performance compared to the S&P 500’s 173%.*
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is on The Motley Fool’s board of directors Randy Zuckerberg, former director of market development and Facebook spokesperson, and sister of Meta Platforms CEO Mark Zuckerberg, The Motley Fool. Fool’s Board of Directors Susan Frey, CEO of Alphabet, is a member of The Motley Fool’s Board of Directors. Anthony DiPizio has no position in any of the listed stocks. The Motley Fool has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla and Uber Technologies. The Motley Fool recommends BYD Company and Broadcom. at and offers the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft.The Spotted Fool has a disclosure policy.
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