Exciting yet exasperating: An analysis of Tesla's stock performance
Tesla Stock Potentially Memorizing Further Losses After a 51% Plunge from Record Highs; Valuation Expert Shares His Resolute Forecast
Tesla's stock (TSLA 3.44%) has been a rollercoaster ride for investors, offering both thrill and frustration. In 2025, shares of Tesla plummeted by a whopping 44%, compared to the declines of 4% for the S&P 500 and 9% for the Nasdaq Composite. However, when viewed from a broader perspective, Tesla's performance over the last year remains impressive, with a 37% increase in share prices.
The intriguing part is that Tesla outperformed the market substantially over the past year, but it has also witnessed a considerable fall in recent months. This indicates that at some point in the last year, Tesla's stock price was significantly higher than its current trading value.
The period of spectacular growth for Tesla's stock can be traced back to the presidential election. Following President Donald Trump's victory on Nov. 5, Tesla's stock soared to record highs. But now, with shares down roughly 51% from their zenith, the question arises: In which direction could Tesla's stock be headed next? Let's delve into the thoughts of New York University's finance professor Aswath Damodaran, better known as the "King of Valuation."
Factors behind the Tesla stock sell-off
In Damodaran's analysis, he identifies three essential factors influencing Tesla's stock price activity:
- Weakening electric vehicle (EV) market demand: Slowing demand for electric vehicles has emerged as a challenge for Tesla.
- Competitive threat from Chinese EV manufacturer BYD: Damodaran highlights BYD as a significant competitor, particularly in acquiring the mass market.
- Elon Musk's involvement in politics: The entrepreneur's increased focus on Washington and the Department of Government Efficiency (DOGE) has raised concerns among some investors about Musk's focus on Tesla's roadmap.
Damodaran predicts a share price of $148 for Tesla, which represents a decline of approximately 38% from the current trading levels.
My perspective
Weak demand for electric vehicles and competition from manufacturers like BYD are undeniable issues for Tesla. In 2024, Tesla's EV business revenue dipped by 6% year over year, and both production and delivery figures also declined – signs of potential competitive pressure and decreasing consumer readiness to pay premium prices for Tesla's vehicles.
BYD's popularity in China and Europe makes it tough to argue against Damodaran's assertion that Tesla may encounter some pricing pressure. However, Tesla's management team has been discussing the production of an affordable EV model for a few years. Although the manufacturing timeline for this new vehicle appears to be set for this year, Tesla has a history of missing deadlines.
In terms of Damodaran's caution regarding artificial intelligence (AI), there might be room for debate. Although Damodaran acknowledges autonomous driving software and robotaxis as potential catalysts, his estimates appear somewhat conservative relative to Wall Street's forecast. For instance, Morgan Stanley analysts anticipate yearly profits of $120 billion from robotaxis by 2040, while longtime Tesla bull Ron Baron thinks robotaxis could generate as much as $375 billion in annual profits by 2040.
Tesla's future hinges on scaling robotaxis to meet Wall Street's targets and delivering customer acquisition numbers in line with investor expectations. If these objectives are achieved, the long-term upside for Tesla could be enormous. However, if Tesla falls short on either count, the company will face significant pressure.
Ultimately, I believe Tesla's stock will continue to face downward pressure in the short term. Yet, the long-term rewards in Tesla – from autonomous driving, robot taxis, and humanoid robotics – are nearly impossible to model accurately right now. As a long-term Tesla investor, I am cautiously optimistic that Musk will deliver on his vision, and I suspect Tesla will enter a period of durable, robust profitability, underpinned by revolutionary advancements in AI.
Given my optimism, I advocate for a dollar-cost averaging strategy and encourage investors to take advantage of any dips in Tesla's stock. Patience, discipline, and an extended investment horizon are crucial for those aiming for significant gains in the current decade and beyond.
- Recent trends indicate that Tesla's stock price has been falling, with shares down roughly 51% from their highest point, as suggested by the "King of Valuation," Aswath Damodaran.
- Despite his prediction of a share price of $148 for Tesla, which would represent a decline of about 38% from current trading levels, the long-term potential rewards for Tesla, such as autonomous driving, robotaxis, and humanoid robotics, remain nearly impossible to model accurately right now.
- For long-term success, investors may consider implementing a dollar-cost averaging strategy, especially during dips in Tesla's stock, to capitalize on opportunities and achieve significant gains in the current decade and beyond.
- To maintain a positive investment outlook for Tesla, patience, discipline, and an extended investment horizon are essential, as the company navigates potential challenges, such as weakening electric vehicle market demand and competition from BYD, while working towards launching an affordable EV model and scaling robotaxis to meet Wall Street's profitability targets.
