Tesla(NASDAQ: TSLA ) The stock rose 70% during 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 — not gaining momentum until Donald Trump won the presidential election in November.
Tesla CEO Elon Musk threw his cash and influence behind Trump’s campaign, and investors are speculating that the company will benefit from lighter regulations under the incoming administration, including its artificial intelligence-powered fully self-driving (FSD). Technology can help fast track.
FSD has the potential to change Tesla’s economics, but the company faces a serious challenge in the short term. Its electric vehicle (EV) sales shrank in 2024, the first annual decline since Tesla launched the Model S in 2011.
That’s a problem because Tesla stock is undeniably expensive right now, and it’s very difficult to justify its current valuation while its EV business is shrinking. Here’s where I think the stock will fall in 2025 and fall out of the trillion-dollar club.
Image source: Tesla.
Last week (January 2), Tesla reported its production and delivery numbers for the fourth and final quarter of 2024. It delivered 495,570. Electric vehicles to subscribers, which was below Wall Street’s consensus forecast of 504,770. That brought the company’s total deliveries for the year to 1.79 million, down 1.1% from 2023.
Although Tesla stock rose last 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 becomes harder to justify further increases in its stock price (more on that later).
Musk recently told investors that EV deliveries could grow by 20% to 30% in 2025, but at the same time, he said he was canceling plans to produce a new low-cost model. Conflicting media reports have surfaced over the past few weeks suggesting that Tesla is now planning to launch an affordable EV called the Model Q sometime this year, along with a cheaper variant of its popular Model Y.
Tesla may struggle to grow its sales without selling entry-level EVs, as competition from low-cost manufacturers in countries such as China increases. BYDFor example, an EV called Seagull sells in China for less than $10,000, and it is expected to enter Europe during 2025. China and Europe are important markets for Tesla, and since its cheapest EV currently costs around $30,000, it just can. Don’t compete.
Musk wanted to scrap plans for a low-cost EV because he wants Tesla to instead focus on autonomous EVs like its new CyberCab robotaxis. It was unveiled in October last year, and will enter mass production sometime in 2026.
The CyberCab will not come with pedals or 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 get it approved for fully supervised use in California and Texas this year. That’s why A Friendly regulatory regime Could be so valuable for Tesla in the US.
Tesla intends to build its own ride-hailing network so that CyberCabs can earn around-the-clock revenue by hauling passengers – Think uber Without human drivers. Also, consumers will be able to buy CyberCabs for personal use, or they can buy a fleet of them to run their own autonomous ride-hailing service using Tesla’s network.
Simply put, fully self-driving technology will create many new ways for Tesla to generate revenue. Cathy Woods Arc Investment Management estimates the company will generate $1.2 trillion in annual revenue by 2029, with FSD and Cybercab accounting for 63% of the total. Another top Wall Street analyst, Dan Ives, also predicts that FSD will become a $1 trillion opportunity over time.
The main reason Tesla’s stock has fallen this year is because of its high valuation, which is not justified based on the current state of its business.
The company delivered $3.65 in earnings per share (EPS) over the last four quarters, keeping its stock at a price-to-earnings (P/E) ratio of 104. It is significantly more expensive than every other tech stock with a valuation of $1. Trillion or more — except BroadcomWhich is not a consistently profitable company (so its P/E ratio is reduced):
Remember, Tesla’s EV deliveries decline in 2024, and a shrinking business usually warrants a lower P/E ratio, not a higher one. And even if investors believe in products like FSD and Robotaxis, the CyberCab isn’t scheduled for mass production until 2026.
That means investors are paying a huge premium for Tesla stock in hopes of seeing meaningful FSD revenue that probably won’t arrive for another two years. In fact, 2025 will likely be similar to 2024, meaning that most of Tesla’s financial results will depend on EV sales.
Tesla’s market capitalization is currently $1.2 trillion, so it would only have to fall 16% to fall out of the trillion-dollar club. I think even more declines are possible this year. The stock would have to fall by 47% to trade in line with its P/E ratio nvidiaA P/E ratio of, for example, that would result in a market cap of about $630 billion.
When our analyst team has a stock tip, it can pay to listen. after all, of stock advisors The total average return is 903% — a market-crushing performance compared to 173% for the S&P 500.*
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John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Anthony De Pizio No position in any of the stocks mentioned. The Motley Fool recommends positions in Alphabet, Amazon, Apple, Meta Platform, Microsoft, Nvidia, Tesla, and Uber Technologies. The Motley Fool recommends BYD Company and Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. Motley Fool has a Disclosure Policy.
