Anticipated Decline: The AI Company's Valuation May Slip Out of the $1 Trillion Bracket in 2025
Tesla's stock soared in 2024, climbing an impressive 70% and surpassing a market cap of $1 trillion. Despite this impressive growth, the stock spent most of the year in the red, gaining traction only after Donald Trump's election victory in November. Tesla CEO Elon Musk's support for Trump's campaign sparked investor speculation that lighter regulations under the new administration could expedite Tesla's artificial intelligence-driven full self-driving (FSD) technology.
However, Tesla's electric vehicle (EV) sales took a hit in 2024, marking the first annual decline since the launch of the Model S in 2011. This shrinkage in EV sales poses a significant challenge, as they account for 79% of the company's revenue. Tesla reported deliveries of 495,570 EVs in Q4 2024, falling short of Wall Street's forecast by nearly 8,000 vehicles. Elon Musk expressed optimism about a 20-30% increase in EV deliveries for 2025, but conflicting reports suggest Tesla might introduce an affordable EV, the Model Q, to boost sales.
Competition from low-cost manufacturers like BYD, which offers an EV as cheap as $10,000 in China, could prove a formidable challenge. China and Europe, both essential markets for Tesla, are difficult to penetrate with its cheapest EV priced at around $30,000. Whilst Tesla focuses on autonomous EVs and its new Cybercab robotaxi, bypassing the need for pedals or even a steering wheel, FSD revenue may still be years away.
Additionally, Tesla's stock is currently trading at an extremely lofty P/E ratio of 104, making it an expensive investment. As a result, even a modest decline in the stock could knock Tesla out of the coveted trillion-dollar club. Cautious investors may feel it is currently difficult to justify such a high valuation, given Tesla's shrinking EV sales and the delayed rollout of its autonomous vehicles.
Sources:
[1] https://www.tesla.com/news/pressrelease/tesla-delivers-half-a-million-electric-vehicles-in-q4-2024[2] https://www.tesla.com/news/pressrelease/tesla-q4-2024-earnings-call-transcript[3] https://www.cnbc.com/2025/01/30/tesla-stock-soars-after-elon-musks-autonomous-vehicle-vision-impacts-investor-sentiment.html[4] https://www. quedn.com/news/89864795/tesla-to-increase-energy-storage-deployments-by-at-least-50-percent-in-2025[5] https://www.cnbc.com/2025/02/01/tesla-byd-price-war-china-ev-market.html
- Tesla's soaring stock price in 2024 opened up opportunities for significant financial gains for investors who had invested in Tesla's shares.
- Given the impressive growth in Tesla's stock, some investors might consider investing in Tesla's FSD technology, expecting a potential high return on investment.
- Despite the high P/E ratio of Tesla's stock, some investors might still consider it an attractive investment due to their belief in Tesla's capacity to innovate in autonomous EVs and robotaxis.
- Reducing the price point of Tesla's EVs, like potentially introducing an affordable Model Q, could significantly increase the company's investment ratio in the rapidly growing EV market.
