Three weeks ago, we made a case that Tesla's (NASDAQ:TSLA) stock boost was temporary, driven on the back of the Trump-Musk alliance. Back then, TSLA shares were priced at $487 vs their current price of $396 per share.
Nonetheless, over three months, Tesla shareholders can still enjoy a stock value return of 63%. This significantly outpaces the broader S&P 500 (SPX) index at 2.9% during the same period and Nasdaq-100 (NDX) at 5.5%.
Just as with crypto memecoins, hype narratives are short-lived. Now that the reality of Trump’s 2nd term is settled, what can Tesla investors expect during 2025?
Tesla’s Cybertruck Flop Offset by Tariffs
In the aftermath of multiple recalls, it is safe to say that Tesla’s electric pickup truck, the Cybertruck, can be viewed as a substantial misallocation of resources. Not only does it represent a departure of design from other Tesla offerings, but it turned out more expensive.
And not only is Cybertruck less robust than expected, but it diverted Tesla’s road to affordable EVs by gobbling up the R&D budget. Most importantly, this happened at a time when Chinese EV manufacturers mastered their scaling operations, having offered EVs under $25k.
Although both the EU and the US want a transition from gasoline to electric vehicles, they are making sure this transition is greatly delayed by erecting high tariffs against China’s automakers. This has been the saving grace for Tesla as the Biden admin quadrupled such tariffs throughout 2024, with more expected from Trump’s tariff-oriented admin.
In other words, Tesla’s Cybertruck experimentation had a tariff-powered reprieve. But long-term, Tesla would have to bolster its core business model with cheaper EV models. On top of that, a large chunk of Tesla’s valuation is predicated on the self-driving potential.
Tesla’s Self-Driving Woes
By many accounts, Tesla’s full self-driving update 13 is a big upgrade on the road to robust autonomous driving. In turn, this boosts investors’ confidence that Tesla can indeed transition into a multi-trillion ride-hailing company with steady cash flows that don’t rely on the cyclical nature of car companies.
However, there is still much uncertainty on the timeframe to make it happen. On top of previous safety probes, the National Highway Traffic Safety Administration (NHTSA) recently put a damper on Tesla’s latest “Actually Smart Summon” feature, covered in early October when TSLA shares were priced at $246.33 per share.
Although a part of the overall FSD initiative, it turned out that even this minor feature resulted in accidents. The January 6th document from NHTSA purports that:
“All four incidents involve the subject Tesla vehicles operating in Actually Smart Summon failing to detect posts or parked vehicles, resulting in a crash. “
Logically, if it is the case that users summoning their Tesla EVs cause crashes, it stands to reason that FSD as a whole is still far from public rollout. However, the prevalence of such incidents against human drivers has yet to be determined.
In other words, the regulatory framework has to establish a clear error threshold. After all, it is not reasonable to posit that a new technology would have to be perfect to be rolled out. Across all commercial/military devices and vehicles, the underlying failure rate is accepted to be “good enough”.
Nonetheless, the uncertainty about Tesla’s FSD robustness is sufficient for Bank of America (NYSE:BAC) to downgrade TSLA stock from Buy to Neutral on Tuesday. BofA’s John Murphy lowered the price target from $490 to $400, close to the current $396 per share.
“While this still implies upside, execution risk is high and TSLA is trading at a level that captures much of our base case [long-term] potential from core autos, robotaxi, Optimus, and energy generation & storage,”
Although Optimus is still a very long-shot consideration, Tesla’s energy division has seen healthy growth in 2024.
Tesla’s Bullish Case Still Sound
Tokenist readers already know that the right time to invest in Tesla was in mid-October, when TSLA shares were priced at $218.47. But despite FSD execution risks, it still remains the case that Tesla has the largest EV market shares in the US/EU. As such, the company collected comprehensive data on people’s driving habits.
Owing to Chinese EV competitors, Tesla’s global EV market share dropped from 19% in 2023 to 17% by May 2024. Yet, BofA analyst John Murphy sees Tesla gaining 5% global market share long-term. That optimism largely depends on the rollout of the company’s affordable model in H1 2025, which should also serve as the basis for the robotaxi business model.
Against competitors like Lyft (NASDAQ:LYFT) and Uber (NYSE:UBER), Tesla could then position its pricing more aggressively. According to Precedence Research, the TAM (total addressable market) for robotaxis is expected to reach $188.91 billion by 2034 from $2.77 billion in 2024, which would mean that Tesla could participate in an impressive CAGR of 60%.
At present, TSLA average price target is $309.34 per WSJ forecasting data. The bottom line is, 2025 will be the deciding year for Tesla. It will become clear if its very high forward price-to-earnings (P/E) ratio of 114.94 is warranted. WSJ’s high price target of $528 is more likely if Tesla moves on from the Cybertruck experiment and focuses all efforts on mass EV affordability and FSD robustness.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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