Tesla's Stock Valuation Decreased by Almost a Quarter in 2023. Consider Purchasing at a Discount?
After an amazing 2023 and 2024, where Tesla's shares skyrocketed 102% and 63% respectively, the stock's 2025 sentiment is drastically different. Currently, shares are down more than 18% year to date. The question on everyone's mind: Is this the perfect time to buy shares of the electric-vehicle giant? Elon Musk, Tesla's CEO, recently told investors that he sees "a path" for the company to become "the most valuable company in the world by far." If Musk is correct, this dip could be a golden chance to invest.
Reasons to be optimistic
At first glance, Tesla seems overly pricey. With a P/E ratio of 163, it's difficult to fathom when looking at the company's latest quarterly results, which showed a 2% year-over-year revenue increase and a 71% drop in net income. Companies with these financials usually have lower P/E ratios.
But true believers in Tesla stock argue that its valuation is based on its future prospects. For instance, Tesla recently revealed plans to test its unsupervised full self-driving taxi service in Austin in June. With the ambition of all its vehicles becoming self-driving, Tesla believes that its owners could earn money by joining the taxi network.
Beyond this "robotaxi" service, Tesla also has a booming energy storage business. Energy generation and storage revenue surged 113% year over year in Q4, accounting for over 12% of total sales. Tesla expects the segment to grow even more.
Lastly, Tesla is working on humanoid robots, a potential future revenue driver. With production planned for this year, the robots could significantly contribute to the company's success in the coming years.
These ambitious endeavors could result in substantial shareholder value over the next five to 10 years. The upside case for Tesla stock revolves around one or more of these major bets and a predicted auto sales rebound helping the automaker live up to its lofty valuation.
Reasons to be skeptical
On the flip side, critics claim that Tesla's ambitious projects are filled with uncertainty and risk. Producing humanoid robots will be capital-intensive, and the success of Tesla's robotaxi service is hard to quantify. Plus, Tesla's energy storage business expansion requires increasing battery production, forcing Tesla to decide between auto sales and energy projects when battery production is constrained.
However, investors should not shy away from the stock due to inherent risks. Every public company involves some degree of risk. A lower price would help reduce the associated risks with potentially overpaying for the stock. Alternatively, considering a purchase at the current price if future earnings calls provide insights into a clear product roadmap may be warranted.
For now, investors should approach Tesla stock with a critical eye. Considering its current valuation, this stance is reasonable.
Sources:1. Automobile Magazine2. Bloomberg3. The Guardian4. Boston Consulting Group
- Given Tesla's bullish outlook, especially its plans for self-driving taxi service in Austin and humanoid robots, some investors might see this dip in the stock's price as an excellent opportunity for allocating funds towards Tesla finance, expecting a significant return in the next five to 10 years.
- Despite Tesla's recently reported earnings with a decrease in net income and a higher P/E ratio than usual, those who believe in its future prospects argue that investing in Tesla is not just about current earnings, but also about allocating money to a company with ambitious plans in the field of self-driving technology and energy storage.
- Critics of Tesla's current financial situation might be more inclined to consider investing in Tesla's shares, as the drop in price makes it less risky for new investors to enter the market, especially if they are confident in Musk's vision for Tesla becoming the most valuable company in the world.
- With Tesla's financials showing a modest revenue increase and a significant drop in net income, some investors might be skeptical about allocating money to the company, but they should remember that Tesla's potential in the self-driving industry, energy storage, and robotics could result in substantial earnings in the coming years, making it an intriguing investment opportunity.
