There aren't a lot of stocks out there that are as volatile as Tesla (TSLA +7.57%) has been. Shares seem to always be bouncing around like a roller-coaster ride. Nonetheless, investors have been rewarded with a monster 1,050% gain in the past five years.
This is a $1.3 trillion dollar company as of Jan. 22. Investors are probably wondering what the future looks like. Where will this electric vehicle (EV) stock be in five years?
Heightened competition
Tesla has become a fan favorite because of its tremendous growth trajectory for much of the past decade. However, things have slowed down dramatically. Blame it on macro forces, like higher interest rates and ongoing inflationary pressures. But this is now a business that appears to be entering a new, lower-growth stage of its lifecycle.
Revenue in the third quarter of 2024 totaled $25.2 billion. That figure was up just 8% year over year, a far cry from the monster double-digit sales gains Tesla has been able to hit throughout the past decade.
And for all of 2024, Tesla delivered just under 1.8 million vehicles. This was a slight dip compared to 2023. For a business that has exhibited rapid expansion over the years, this isn't something shareholders are used to seeing.
Besides economic factors, competition is another headwind impacting Tesla. It's no longer the only game in town, with legacy automakers and younger upstarts all launching their own EV models. As a result, consumers have more choice than they ever had before.
NASDAQ: TSLA
Key Data Points
Uncertain optionality
While Tesla's current reality, namely slower growth and intense competition, resembles that of a typical automaker, some of the company's most bullish supporters envision a different future, one that's characterized by full self-driving (FSD) advancements. The hope is that Tesla can one day launch a global robotaxi service that generates "quasi-infinite demand," according to founder and CEO Elon Musk.
But Tesla has consistently overpromised and underdelivered in this regard. It's evident that bringing FSD to the masses might still be a long way away, as there are sizable technological, regulatory, and psychological hurdles to overcome. While FSD tech could be very lucrative for the business, it's anyone's guess if this will ever happen.
One bright spot, however, is Tesla's energy generation and storage segment. Revenue here jumped 52% year over year to $2.4 billion in Q3. Management even says that the company's mission is "to accelerate the world's transition to sustainable energy." It's definitely reasonable to expect this segment to become more important to financial results over time, particularly as Tesla could be a beneficiary of government policies that propel adoption of clean energy.
Story stock
Tesla has undoubtedly been a wildly successful wealth builder for investors in the past. Even recently, the stock has surged 91% in just the last three months. The valuation remains steep, though.
Shares trade at a price-to-earnings (P/E) ratio of 114. That's an incredibly expensive valuation for a company that still brings in the vast majority of its sales from EVs. As I noted earlier, intense competition and macro factors have created a more difficult environment for the business to register the huge growth investors have become accustomed to. And this will also make it challenging to post improving profitability.
What's more, broad adoption of FSD capabilities still seems like a very long way away. It does add optionality, which might have value, but not so much to warrant that investors pay a P/E ratio of 114. Based on the current setup, I don't believe Tesla will beat the Nasdaq Composite index between now and 2030. Expectations are way too high, and the certainty of a favorable outcome is way too low.
