Shares of Tesla (TSLA -2.57%) declined by 42% in the first few months of 2024. As of this writing, it's now up by a whopping 86% year to date, and it recently surpassed its all-time high from 2021.
Why the stunning turnaround? CEO Elon Musk put his cash and his influence behind Donald Trump's election campaign, which may have helped him bring home the victory. As a result, investors are speculating that Tesla will benefit from the incoming administration's policies, which is why most of the gain in its stock for 2024 occurred after Election Day on Nov. 5.
With the year drawing to a close, the company is almost due to report its fourth-quarter production and delivery numbers for its electric vehicles (EVs). Those figures should be announced on Jan. 2, and they have the potential to move the stock. So, should investors buy it beforehand?
Tesla's EV deliveries are on track to decline in 2024
The stock might be having a great year, but its core business isn't. The company delivered 1.29 million EVs during the first three quarters of 2024, which was a 2.3% drop from the same period last year. That puts Tesla's deliveries on track for their first annual decline since the company launched its flagship Model S in 2011.
That's a problem, because EV sales still account for 79% of the company's total revenue. If this part of its business isn't performing, it becomes very hard to justify further upside in its stock (more on this later).
And as recently as last year, Musk was forecasting a 50% annual increase in EV production as far as the eye can see, but that can't happen if sales aren't keeping up.
The company faces a number of challenges. EV demand appears to be softening in general, with legacy automakers like Ford and General Motors slashing billions of dollars from their planned investments into this segment over the last couple of years. Just four months ago, Ford scrapped its new electric sport utility vehicle entirely, after investing $1.9 billion developing it. It will focus on hybrids instead, which sell at a cheaper price point.
Competition from low-cost EV manufacturers in countries like China have also hurt Tesla. BYD, for example, sells a $10,000 model in China, and it plans to launch it in Europe in 2025. Tesla has a large presence in both of those markets, and it simply can't compete at that price point. That is unlikely to change, because Musk recently canceled plans to produce a low-cost EV entirely.
Image source: Tesla.
Deliveries aren't the main thing driving Tesla stock
You might be wondering why Tesla stock is soaring in light of all of the issues I highlighted above. Investors are more focused on the company's full self-driving (FSD) software, which could transform its economics. In fact, the reason Musk scrapped the low-cost EV is because he wants to focus on Tesla's new autonomous robotaxi, which is called the Cybercab.
It will enter mass production in 2026, and it won't come with pedals or even a steering wheel because it will run entirely on Tesla's FSD software. The company plans to operate an autonomous ride-hailing network where Cybercabs can earn revenue around the clock by hauling passengers.
Consumers will be able to buy them for personal use, or they can use them to operate their own autonomous ride-hailing fleet.
FSD is already available in beta mode for owners of Tesla's passenger EVs, but it isn't actually approved for unsupervised use anywhere in the U.S. just yet. Investors are betting the incoming Trump administration will operate a much friendlier regulatory regime, which could potentially fast-track FSD approval.
Top Wall Street technology analyst Dan Ives predicts FSD represents a $1 trillion opportunity for Tesla. Similarly, Cathie Wood's Ark Invest believes the company will generate $1.2 trillion in annual revenue by 2029, with 63% coming from FSD and the Cybercab. That's why Tesla stock rocketed higher after the election -- the sooner FSD is approved, the sooner the company can unlock that value.
Tesla stock is extremely expensive right now
Before investors jump in to buy the stock before Jan. 2, they need to consider its valuation. Based on the company's trailing-12-month earnings per share of $3.65, the stock trades at a price-to-earnings ratio (P/E) of 125.That makes it one of the priciest large-cap tech stocks in the U.S. -- it's more than twice as expensive as Nvidia!
TSLA PE ratio; data by YCharts.
The Nasdaq-100 technology index trades at a P/E of just 33.9, and considering it's home to most of Tesla's big-tech peers, it really puts the company's sky-high valuation into perspective.
As I highlighted earlier, Tesla's deliveries are on track to shrink in 2024 once the final numbers for the year are officially reported on Jan. 2. Without growth, its stock has no justifiable reason to trade at such a lofty level.
Musk believes deliveries could increase by as much as 30% in 2025, but it's unclear where that growth will come from considering there is no low-cost EV on the way, and the Cybercab won't enter mass production until 2026.
As a result, it's extremely unlikely the Jan. 2 report will contain anything that will make Tesla seem attractive at the current price, so investors who don't own it already might want to sit on the sidelines until we see a meaningful correction.
