Tesla stock staged a massive turnaround right after the November election. Sustaining this run into 2025 will require the electric vehicle behemoth to show progress on its long promised ambition of building a robotaxi business, analysts say. Tesla stock has soared 75% in 2024 – three times more than S & P 500 — after doubling in 2023. Nearly all of this year’s gain has come in the six weeks since Donald Trump was elected the next president. CEO Elon Musk ‘s close relationship with the president-elect is partly behind the stunning turnaround, analysts say. They say the rally is built on more than improved sentiment alone. Tesla watchers also expect the new administration’s policies will boost the company’s performance in tangible ways, and that the push to deregulate business will smooth Tesla’s path to achieving its goals. “The reaction in the stock since the election is really coming out of this easier path to regulatory approvals and getting full, unsupervised [full self driving vehicles] approved, and what that means for the robotaxi side of the business,” Stephen Gengaro, managing director at Stifel, told CNBC. Note, Tesla has been hit this week as the overall market faces a late-year selloff. Swollen valuation Tesla’s market cap has swollen to $1.4 trillion , making it the world’s eighth most valuable company. But that also means Tesla is selling at a forward price-to-earnings ratio of 131.7, far above the average next 12 months P/E for the S & P 500 of 21.6, and even more than Tesla’s own five-year average NTM P/E of 90.6. On average, analysts surveyed by FactSet expect Tesla shares to fall to a 12-month consensus price target of $295, about 32% below where the stock closed Thursday . TSLA YTD mountain Tesla shares in 2024. Tesla’s underlying business has faced slumping demand for electric vehicles all year. Sales rose just 3.1% in the first 9 months of 2024 compared with same period a year ago, according to FactSet, far slower than the 18.8% sales growth from 2022 to 2023, and the 51.4% expansion from 2021 to 2022. Still, this might be bottom, with analysts polled by FactSet expecting year-over-year growth to rebound to nearly 18% in 2025. But the expected loss of a $7,500 federal tax credit for new electric vehicle purchases under the incoming Trump administration could make the short-term outlook even worse. Goldman Sachs expects eliminating the tax credit will slow U.S. electric vehicle demand until 2040. The firm expects EVs will make up 8.5% of all new vehicle sales next year, below an earlier estimate of a 9% market share. Goldman still expects sales to pick up in coming years ahead, with EV market share rising to 25% by 2030, 40% in 2045 and 60% by 2040. Conversely, the looming loss of the tax credit could serve as a short-term boost to EV sales by pulling demand forward, according to Deutsche Bank. “If the [Trump] administration indeed decides to eliminate or alter parts of the [Inflation Reduction Act], including the $7,500 consumer tax credit and battery production credits, we could potentially see a near-term pull-forward in EV purchases ahead of the elimination,” analyst Edison Yu wrote in a report last week. “However, it’s unclear how much temporary tailwind this could provide as the true demand for EVs will very much rely on the launch of more mass market, more affordable EVs, with structural improvements to the charging infrastructure and improvements in vehicle range.” Musk expects the bulk of the pain from the lost credit will be felt by his competitors, including Ford and General Motors . That’s because legacy automakers have leaned more heavily on the tax credit to try to compete with Tesla, which dominates the U.S. EV market. “At a high level, [the loss of the tax credit] will theoretically hurt Tesla because cars get more expensive to the consumer if they don’t have the credits,” Stifel’s Gengaro said. “But on the flip side, it hurts Tesla a lot less than it hurts some of the competition.” Musk’s close relationship with Trump has so far been viewed as a benefit for the stock, and the company’s future. Reuters reported that the Trump team is considering doing away with a car-crash reporting requirement long opposed by Musk. But the administration’s policies could also still create new challenges for Tesla and its competitors, notably by slapping tariffs on imports from Mexico, Canada and China. “While we see some fundamental headwinds to the core auto business over the near- to medium term and see valuation as full, we also believe the stock could remain at a higher multiple to reflect the long-term opportunity tied to FSD/robotics given broader market interest in potential AI beneficiaries,” Goldman Sachs analyst Mark Delaney wrote, also last week. Goldman’s $345 per share price target on Tesla is about 21 % below where the stock closed on Thursday. Nearly half, or 46%, of analysts polled by FactSet carry a buy or overweight rating on Tesla stock. Less than a third, or 30%, of analysts hold a neutral rating. Musk unveiled Tesla’s robotaxi this past October, but the demonstration was limited to a Tesla campus, and it wasn’t clear whether the vehicles were capable of navigating roads that weren’t already predetermined. Ideally, investors want to see whether the Trump administration can get robotaxis on the road as soon as possible, Gengaro added. As it pushes ahead with these innovations, Tesla still needs to deliver growth in its existing business, said George Gianarikas, an analyst at Canaccord Genuity. “Right now, Tesla has promised that they’re going to have new products coming soon, so that should help their year-over-year growth rates,” Gianarikas said. Perhaps the most anticipated product in Tesla’s pipeline is the forthcoming budget EV, with the company aiming to price each car below $30,000. Earlier this year, Musk said that he hopes to launch the more affordable EV in 2025. Critical to the outlook is near-term, year-over year growth. Most of that growth will be in China, where Deutsche Bank estimates Tesla will see the majority of its forecast 510,000 to 511,000 vehicle deliveries in the fourth quarter. That’s a hair below below the roughly 515,000 units Tesla would need to ship in the fourth-quarter in order to deliver year-over-year growth, Yu added. Currently, the analyst says Tesla is on track to deliver close to 500,000 EVs. Given a history of broken promises, there’s always the risk that Tesla’s self-driving plans stall. If that happens, Tesla will trade solely on its auto business, which would warrant a lower valuation, Gengaro said. “If you think [Tesla] is just an auto company, you’re not going to buy the stock anywhere near this valuation,” Gengaro said. Automakers tend to trade at a NTM P/E below 6. For example, Ford and GM sport NTM P/E ratios of 5.7 and 4.7, respectively, while Stellantis sells for a 4.2 NTM P/E. “The stock is way overvalued” if full self-driving vehicles don’t pan out, Gengaro said.
