Tesla (TSLA 8.22%) had a big year in 2024 and shareholders enjoyed a 70% gain (as of Dec. 30).
A series of positive factors, such as solid sales volume and the election of Donald Trump as president, propelled the stock to new all-time highs. But as the year ends, should investors buy Tesla stock now for 2025? Let's explore.
Image source: Getty Images.
Becoming the largest car manufacturer
The rise of the electric vehicle (EV) industry has been a significant trend during the past decade as countries globally work to solve environmental issues. This major transition gave early movers like Tesla a big advantage in gaining market share from the incumbents.
Unsurprisingly, Tesla has become the biggest EV car manufacturer in the U.S., making up nearly 50% of EV sales in 2024. While Tesla's EV market share has fallen from 75% at the beginning of 2022 as the incumbents have started catching up, it still holds the dominant market share.
Despite its remarkable achievements during the past few years, Tesla has bigger ambitions over the longer term: to become the largest car manufacturer. A series of strategies, which include reducing sales prices, cutting costs to become the cost leader, and launching a low-priced car model, demonstrate the company's resolve to achieve its long-term mission.
In fact, Tesla Chief Executive Officer Elon Musk has openly stated his goal of selling 20 million cars by 2030, even though many Tesla fans think that the company could be pivoting more toward robotaxis than just selling traditional EVs. Regardless, Tesla's ambition to dominate the automobile industry is clear and resolute.
The good news is that there are early indicators that Tesla's long-term mission is on track. For example, in the third quarter of 2024, Tesla achieved its lowest cost of goods sold per vehicle of $35,100, increased vehicle deliveries both sequentially and year over year, reduced operating expenses by 6% despite selling more cars, and improved its gross margin by 1.95 percentages points year over year.
While a single quarter of financial performance does not indicate future results, it suggests that Tesla has been making good strides in moving toward its long-term mission.
More than just a car manufacturer
Tesla might have started as an EV manufacturer, but it has, over the years, gone beyond its roots into other sectors such as renewables, autonomous driving, and robotaxis.
Take renewables, for example. Tesla aims to provide a complete solution for commercial and residential customers to move toward energy independence, covering major components like solar panels and energy storage. As the world becomes more conscious about sustainability and environmental friendliness, the renewable energy business sits at the center of a megatrend that could last for decades.
Another area that could become a huge game-changer for Tesla is its investment in artificial intelligence (AI), which could, in turn, help it accelerate products in areas like autonomous vehicles, robotaxis, and humanoid robots, to name a few. Each product could yield tens of billions of dollars over time, if not more. For instance, Elon Musk claims that Tesla's humanoid robot Optimus could one day lift the company's market capitalization to $25 trillion as the world embraces these robots en masse. (Tesla's market cap now is about $1.4 trillion.)
While it's unlikely that all of these new ventures will become as successful as the EV business, just one or two successes in these areas could create enormous value for Tesla's shareholders.
But here's the potential deal-breaker
By now, it's not hard to see that I'm bullish about Tesla's business prospects for the next few years. However, I can't say the same about Tesla's stock.
Optimistic investors have bid up Tesla's price to excessive valuations. For instance, Tesla has a price-to-sales ratio of 16 and a forward price-to-earnings (P/E) ratio of 125. So, while Tesla's prospects are undeniably good, conservative investors will still question whether paying such a high price tag makes sense -- especially for high-risk ventures that have yet to materialize.
Besides, Tesla's stock has had a considerable run lately since Trump won the election, as investors expect favorable treatment for Tesla due to Musk's close association with the incoming president. Such speculation, however, is risky since it's too complex to predict how such relationships will affect Tesla.
What it means for investors
Tesla has a bright future as it continues to scale its EV business while developing its newer ventures in robotaxis, robotics, and more. As such, existing investors, especially those who bought the stock at much lower price points, may consider holding the stock into 2025.
But for the rest, buying Tesla's stock at today's valuation is probably too risky, even though there's strong momentum for the stock price to advance further in 2025.
It's better to be safe than sorry.
