Tesla (TSLA 7.36%) was one of the biggest surprises of 2024.

The stock underperformed the market for much of the year as the company reported disappointing quarterly results, including sluggish growth and falling profits. Additionally, EV sales growth has slowed as momentum in the industry appears to be waning after early adopters have already purchased an EV and EV stocks in general have struggled this year.

As of October 23, the stock has lost 14% year to date, underperforming S&P 500which had increased significantly by 21%, as the following graphic shows.

TSLA data from YCharts

Since then, however, the stock has been on fire. The company initially impressed investors with its third-quarter earnings report, which showed strong profit growth, and CEO Elon Musk predicted vehicle production would rise 20% to 30% in 2025, a significant improvement from stagnant growth in the year 2024 represents.

Then Tesla surged after the election as Musk’s big bet on Trump appeared to be paying off. Investors appear to be hoping that the Trump administration will make it easier for Tesla to launch its new Cybercab, also called Robotaxi. Tesla also plans to launch a low-cost Model Q priced under $30,000 in the first half of 2025. As you can see from the chart below, as of December 17th, the stock is up a whopping 125% in less than two months.

TSLA data from YCharts

As you can see, Tesla is bringing a lot of momentum into the new year. So will the stock continue to rise or is it headed for a decline? Here are a few things to keep in mind.

Image source: Tesla.

Expectations are now high

Tesla stock was already expensive before its recent rally, but its valuation now appears to have become completely disconnected from the underlying business. The stock trades at a price-to-earnings ratio of 200, which is much more expensive than any of its Magnificent Seven peers, none of which have a P/E ratio above 51.

At this price, it will be difficult for Tesla as a car manufacturer alone to meet expectations, as the company already sells almost 2 million vehicles per year. Those high expectations appeared to be based on Musk’s own predictions for the company’s autonomous vehicle business, as he said Tesla would be the most valuable company in the world if its robotaxi market boomed. Considering that the Cybercab hasn’t entered production yet and the company has regulatory hurdles to overcome, it’s certainly not guaranteed that its self-driving cars will replace it Above as Musk imagined.

How much help will Trump really be?

Tesla shares have almost doubled since the election, and Musk’s friendly relationship with Trump is one of the main reasons why. Musk spent hundreds of millions of dollars on Trump’s campaign and appeared on stage with him several times. He was also put in charge of the new Ministry of Government Efficiency, tasked with tracking government waste.

However, in some ways Musk and Trump are unlikely bedfellows. First, Trump is known for favoring fossil fuels over green energy, and his administration has already indicated that it will eliminate the $7,500 electric vehicle tax credit. Musk has downplayed the impact of such a move, saying it would be much worse for electric startups than Tesla, but it would likely shift some of the demand for electric vehicles back to traditional combustion vehicles for price-sensitive consumers, which would be negative for Tesla .

The real opportunity for the electric vehicle maker lies in autonomy, and the Trump administration has also indicated that it would relax rules for self-driving cars and establish a national standard, which would make it easier for Tesla to introduce the Cybercab, which has no autonomous Driving has steering wheel.

However, safety will be the ultimate test for any autonomous vehicle, and if the cars are allowed on the road before they are operational, it could be a disaster for both Tesla and the Trump administration.

Is Tesla a buy for 2025?

Tesla is one of the more unpredictable companies and its shares are notoriously volatile.

However, at the current valuation, we are entering the new year with a price that is essentially aimed at perfection. Autonomy is unlikely to have an impact as the company does not plan to produce the Cybercab in 2026, although signs of progress could give the stock a boost.

Instead, investors’ attention will focus on its core business, the Model Q vehicle, and whether the Trump administration can help the company materially.

With Tesla already trading at a market cap of $1.5 trillion and a P/E ratio of 200, despite current investor enthusiasm, it seems likely that the stock will underperform next year.