Tesla (NASDAQ: TSLA) has been one of the market's best-performing stocks over the past five years, but remains a battleground for investors. CEO Elon Musk has long been the focus of controversy, most recently for his vocal support of newly elected President Donald Trump, who put him in charge of the newly created Department of Government Effectiveness. Since Trump’s election, Tesla’s stock price has also soared, rising nearly 70%, making the company one of the largest companies in the world. As of January 6, the company ranked eighth globally, according to this Motley Fool study.
Tesla's sincerity is now well known. The company is one of the world's largest electric vehicle (EV) manufacturers. Recently surpassed by China BYDBut the two are still vying for first place. However, Tesla is viewed as more than just an all-electric car company. Investors raised hopes for its self-driving technology, which includes self-driving cars like the recently launched Cybercab and its autonomous robot Optimus. The timetable for these products to go on sale is unclear, but Tesla aims to begin production of Cybercab in 2026.
The electric car maker's shares have soared since Trump's election and it's one of the largest companies in the world, but is it a buy in 2025? Let’s take a look at the bull and bear market scenarios for this stock.
Tesla pioneered and essentially proved the electric vehicle market, and it has built an unparalleled brand and ecosystem in the electric vehicle industry. It has built the world's largest fast-charging network and its brands range from mass-market cars like the Model 3 to luxury vehicles like the Model S, X and Cybertruck, while rival BYD has dabbled in low-end electric vehicles.
In addition to its strong brand and global positioning, Tesla's self-driving technology also gives it an advantage. although alphabetical Waymo is widely regarded as the technology leader in self-driving cars, operating the largest active self-driving ride-sharing network in the United States. Tesla has a much larger fleet and the ability to upload AV software such as full self-driving to anything on the road. Tesla. Give it an advantage in the autonomous driving competition.
Ultimately, EVs represent only a small portion of the automotive industry's overall market share, and public policy as well as environmental concerns around the world are helping to convert market share to EVs. This should benefit Tesla in the long run.
Despite Tesla's huge future potential, there are still reasons to worry about its business and stock. First, Tesla's recent financial performance has been poor. In 2024, the company's car sales fell for the first time since 2011.
In the third quarter, overall revenue increased 8% year-over-year due to significant growth in its energy and services businesses, but automotive revenue increased only 2% to $20 billion. Tesla's profit margins improved, overcoming previous profit declines. However, since gross margins in the automotive industry are typically low, the business will be tied to revenue growth.
Musk has said that production will increase by 20%-30% by 2025, but Tesla has not always achieved Musk's goals, and there are real problems with demand from the electric vehicle industry as the entire industry in the United States slows down. . This suggests that the transition to electric vehicles may not be as smooth as some hope, and it may get worse with the Trump administration, who is expected to eliminate electric vehicle tax credits and take Measures to support fossil fuel companies.
Additionally, Tesla stock has become expensive following its recent gains. The company trades at about 200 times earnings, based on adjusted earnings, and most stocks in an industry in which it operates primarily have price-to-earnings ratios below 10. Tesla's potential in disruptive industries deserves the premium. Autonomy and all that, but a P/E ratio of 200 is basically unheard of for a company that's currently experiencing almost flat revenue growth.
Tesla's self-driving vision may be unparalleled, but meaningful execution appears to be several years away. At the same time, the stock looks expensive even for a technology company, and the demand growth curve for electric vehicles that investors are counting on appears to be broken. The Trump administration appears set to further challenge the electric vehicle industry.
At this point, buying the stock seems like a clear bet on the company's success in becoming autonomous, but the valuation still leaves a long way for the stock to fall if the business disappoints. Given the substantial risks, investors would be wise to avoid the stock in 2025, at least until valuations pull back or show clearer signs of autonomous progress.
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Suzanne Frey is an Alphabet executive and a board member of The Motley Fool. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns and recommends Alphabet and Tesla. The Motley Fool recommends BYD. The Motley Fool has a disclosure policy.
Tesla is one of the largest electric car companies in the world. But is 2025 a buy? Originally posted by The Motley Fool