Is Tesla Stock a Buy in 2025?

Is Tesla Stock a Buy in 2025?

Tesla may be a great company, but investors should think twice before buying the stock.

Tesla (TSLA -3.25%) had a big 2024 and shareholders enjoyed a 70% gain (as of December 30).

A number of positive factors, such as solid sales volume and the election of Donald Trump as president, pushed the stock to new all-time highs. But at the end of the year, should investors buy Tesla shares now for 2025? Let’s explore.

Robot uses the laptop.

Image source: Getty Images.

Become the largest automobile manufacturer

The rise of the electric vehicle (EV) industry has been a significant trend over the last decade as countries around the world work to solve environmental problems. This major shift gave pioneers like Tesla a huge advantage in gaining market share over the incumbents.

Not surprisingly, Tesla has become the largest electric car manufacturer in the US, accounting for nearly 50% of electric car sales in 2024. Although Tesla’s 75% electric car market share has fallen from 75% at the start of 2022 as incumbents have begun to catch up, it still holds the dominant market share.

Despite its remarkable successes in recent years, Tesla has bigger ambitions in the longer term: to become the largest car manufacturer. A series of strategies, which include reducing sales prices, reducing costs to become cost leaders, and introducing a low-cost car model, demonstrate the company’s determination to achieve its long-term mission.

In fact, Tesla CEO Elon Musk has openly stated his goal of selling 20 million cars annually by 2030, although many Tesla fans believe the company could focus more on robotaxis than just selling traditional electric vehicles. Regardless, Tesla’s goal to dominate the automotive industry is clear and determined.

The good news is that there are early signs that Tesla’s long-term mission is on the right track. For example, in the third quarter of 2024, Tesla achieved the lowest cost of goods sold per vehicle at $35,100, increased vehicle deliveries both sequentially and year-over-year, reduced operating costs by 6% despite selling more cars, and improved its gross margin by 1 .95 percentage points year-on-year.

While a single quarter of financial performance is not indicative of future results, it does suggest that Tesla has made good progress toward its long-term mission.

More than just a car manufacturer

Tesla may have started out as an electric vehicle maker, but over the years it has expanded beyond its roots into other sectors such as renewable energy, autonomous driving and robotaxis.

Take renewable energy for example. Tesla’s goal is to offer commercial and residential customers a complete solution for achieving energy independence, including key components such as solar panels and energy storage. As the world becomes more aware of sustainability and environmental friendliness, the renewable energy business is at the center of a megatrend that could last for decades.

Another area that could be crucial for Tesla is its investments in artificial intelligence (AI), which in turn could help it accelerate products in areas such as autonomous vehicles, robotaxis, and humanoid robots, to name a few . Each product could generate tens of billions of dollars over time, if not more. For example, Elon Musk claims that Tesla’s humanoid robot Optimus could one day increase the company’s market capitalization to $25 trillion as the world adopts these robots en masse. (Tesla’s market cap is currently about $1.4 trillion.)

While it’s unlikely that all of these new ventures will be as successful as the electric vehicle business, just one or two successes in these areas could create tremendous value for Tesla shareholders.

But here lies the potential deal-breaker

By now, it’s not hard to see that I’m optimistic about Tesla’s business prospects for the next few years. However, I can’t say the same about Tesla stock.

Optimistic investors have increased Tesla’s price to inflated valuations. For example, Tesla has a price-to-sales ratio of 16 and a forward price-to-earnings (P/E) ratio of 125. Although Tesla’s outlook is undeniably good, conservative investors will still question whether they should pay such a high amount The price makes sense – especially for high-risk ventures that haven’t yet come to fruition.

Additionally, Tesla stock has seen a significant boost since Trump’s election victory as investors expect favorable treatment from Tesla due to Musk’s close ties to the new president. However, such speculation is risky because it is too complex to predict how such relationships will affect Tesla.

What it means for investors

Tesla has a bright future ahead of it as the company continues to expand its electric vehicle business while also advancing its newer ventures in robotaxis, robotics, and more. Therefore, existing investors, especially those who bought the stock at a much lower price, might consider holding the stock until 2025.

But otherwise, buying Tesla shares at today’s valuation is probably too risky, even if there is strong momentum for the share price to rise further in 2025.

It’s better to be safe than sorry.

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