Tesla (TSLA -4.95%) stock has been on an upward tear in recent weeks. Its share price has doubled since the company reported earnings on Oct. 23, and it has advanced more than 70% since the U.S. presidential election on Nov. 5. Factors contributing to that upside include encouraging updates during the recent earnings call, and CEO Elon Musk's close relationship with President-elect Donald Trump.
Importantly, Tesla's stock recently did something it hasn't done in more than three years: It reached a new all-time high on Dec. 11, 2024 for the first time since November 4, 2021. But Wall Street says the stock is due for a correction. The median 12-month price target of $275 implies 37% downside from the current share price of $436. The median is the middle value. So, half of the 57 analysts who follow Tesla currently think shares will plunge more than 37% in the next year.
Here's what investors should know about the electric carmaker turned artificial intelligence (AI) company.
Tesla reported encouraging financial results in the third quarter
After a series of disappointing financial reports, Tesla may have reached a turning point in the third quarter. Revenue rose 8% to $25 billion, gross margin expanded 195 basis points to its highest level since 2022, and non-GAAP net income jumped 9% to $0.72 per diluted share. Additionally, CEO Elon Musk said deliveries could increase 20% to 30% next year.
In particular, margin expansion bodes well for Tesla. The company cut prices several times in recent years to compensate for weak demand caused by high interest rates. Those price cuts hurt profitability. In fact, Tesla's earnings declined in the first and second quarters this year, and the company missed earnings estimates in the four quarters preceding the most recent one. But Tesla may finally be on the upswing now that interest rates are falling.
Indeed, while the company has seen its market share decline by three percentage points in 2024, Tesla still accounted for an industry-leading 17% of battery electric vehicle (EV) sales through October. And that figure could increase next year when it adds a more affordable model in the first half of 2025. But its largest opportunities lie in AI and robotics.
Tesla has big opportunities in autonomous driving technology and robotics
Elon Musk has frequently said fully autonomous vehicles were right around the corner and has consistently come up short on those predictions. However, most analysts have no doubt that self-driving cars are the future of the transportation and mobility industries, and Tesla is ideally positioned to disrupt both in the years ahead.
Touting 1,000-fold improvements in critical interventions in its full self-driving (FSD) software this year, Tesla will release an unsupervised version of FSD and launch a ride-hailing service in California and Texas in 2025 that will have major implications for the business. Grand View Research estimates autonomous vehicle sales will reach $214 billion by 2030, and Musk believes FSD can push Tesla's gross margin to 70%.
Beyond autonomous driving technology, Musk believes the humanoid robot Optimus will eventually be Tesla's most valuable product. He said on the third-quarter earnings call, "I feel confident in saying that we have the most advanced humanoid robot by a long shot." Citigroup analysts estimate humanoid robot sales will reach $209 billion by 2035, $1 trillion by 2040, and $7 trillion by 2050.
Image source: Tesla.
Some Wall Street analysts are very bullish on Tesla
Gene Munster, managing partner at Deepwater Asset Management, believes Tesla will be one of the two major players in autonomous driving alongside Alphabet subsidiary Waymo. And he told CNBC earlier this year that Tesla could eventually be a $3 trillion company. That implies 114% upside from its current market value of $1.4 trillion.
Dan Ives, senior research analyst at Wedbush, says Tesla's FSD software is analogous to Apple's services business in that it lets the company monetize its hardware long after the original sale. He also believes ties between Musk and President-elect Donald Trump will lead to regulatory changes favorable to autonomous driving technology.
On that note, Ives thinks the 2025 launch of unsupervised FSD software and autonomous ride-hailing services could generate enough excitement that Tesla achieves a market value of $2 trillion before the end of next year. In fact, Ives told CNBC in late November that Tesla was "the most undervalued AI name in the market."
Tesla stock looks very expensive at its current valuation
Wall Street expects Tesla's earnings to increase at 28% annually through 2025. That consensus makes the current valuation of 180 times adjusted earnings look absurdly expensive. Personally, I think investors should wait for shares to lose their momentum before buying a position. As mentioned, the stock has gained more than 70% since early November. I would be shocked if the stock doesn't pull back at some point.
However, current shareholders should sit tight if they believe in Tesla's shift toward FSD software, autonomous ride-hailing services, and humanoid robots. The road will probably be bumpy, but Tesla could be worth much more five years from now if it revolutionizes the mobility, transportation, and labor industries.
