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Tesla (TSLA) stock has taken investors on a roller-coaster ride in recent years. After touching all-time highs in November 2021, TSLA stock fell over 72% in the next 15 months. However, shares of the electric vehicle (EV) manufacturer have surged 25% in the last month following its Q1 results and some high-profile announcements.
Despite the drawdown, Tesla stock has returned over 13,700% since its IPO (initial public offering) in July 2010, valuing the company at a market cap of $565.9 billion. Let’s see if the worst is over for Tesla stock, and if it can gain pace in the next 12 months.
Is Tesla a Good Stock to Buy Right Now?
Tesla’s first-mover advantage allowed it to gain massive traction in the global EV market. Its leadership position meant Tesla increased sales by 71% year over year in 2021 and 51% in 2022. However, interest rate hikes, inflation, and a sluggish macro environment meant demand for EVs fell off a cliff, and Tesla grew sales by “just” 19% in 2023. Moreover, its top line narrowed by 9% while operating income fell 56% year over year in Q1 of 2024.
To offset weak demand, Tesla was forced to lower vehicle prices multiple times in the last two years, resulting in lower revenue and profit margins. However, lower prices allowed Tesla to grow deliveries by 38% year over year in 2023, compared to a 40% growth in 2022. The vehicle manufacturer has also focused on lowering the cost of goods sold and operating expenses to boost the bottom line.
To that end, Tesla recently reduced its employee count by 10%, and further cuts are expected as it aims to reach its target of selling 20 million cars each year over time.
Affordable Cars and FSD Might Drive Growth
The key driver of Tesla’s share price appreciation was the company’s announcement of introducing lower-cost vehicles in 2025. A lower-priced vehicle should give Tesla a foothold in emerging markets such as India, Southeast Asia, and Latin America.
Further, Wall Street was excited about Tesla’s FSD (full self-driving) technology, which should eventually enable it to launch a robotaxi service, and potentially disrupt the ride-hailing market in the U.S., currently dominated by Uber (UBER) and Lyft (LYFT).
A self-driving taxi will allow Tesla to report much higher margins compared to Uber, as driver costs will be non-existent. In fact, during the Q1 earnings call, Tesla CEO Elon Musk claimed he sees the robotaxi segment enjoying “quasi-infinite demand.”
According to an ARK Invest research report, the robotaxi market could generate around $440 billion in sales, which is almost 3x the size of the ride-hailing market in 2023.
Is Tesla Stock Undervalued?
Out of the 32 analysts tracking TSLA stock, eight recommend “strong buy,” two recommend “moderate buy,” 16 recommend “hold,” and six recommend “strong sell.”
The average target price for TSLA stock is $176.45, which is marginally lower than Friday's close.
Analysts tracking Tesla stock expect its sales to rise by 2.2% to $98.87 billion in 2024 and by 17.4% to $116 billion in 2025. While adjusted earnings are forecast to narrow from $3.12 per share in 2023 to $2.53 per share in 2024, the metric could improve to $3.31 per share in 2025.
Tesla is forecast to end 2028 with adjusted earnings of $6.50 per share, given consensus estimates. So, if TSLA stock is priced at 30x forward earnings, it would trade around $195 in May 2027, indicating an upside potential of just 10% from current levels.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
