Tesla (TSLA +0.91%) is one of the best performing stocks of the last 15 years, up 17,430% since its initial public offering. And yet the shares are down 42% from all-time highs set at the end of 2024, making it one of the worst drawdowns for the stock in its history.
CEO Elon Musk believes he has a way to stop this downward spiral.
The ever-ambitious founder said in a response to an investment analyst on X (formerly Twitter) that he believes a 1,000% increase in profits for Tesla is possible over the next five years. Does that make the stock a buy-the-dip candidate today? Let's dive into this electric vehicle and technology company to find out.
More growth in electric vehicles?
Electric vehicles (EVs) were how Tesla made a name for itself and garnered (multiple times) a $1 trillion market capitalization. The company went from a negligible player in the automotive space to selling over 1 million vehicles a year around the globe.
Now, that growth is starting to slow. In 2024, Tesla delivered 1.79 million vehicles to customers, down from 1.81 million in 2023, which broke its streak of impressive year-over-year unit growth. Management has started to cut prices to get inventory out the door, and that's hurting the company's gross margin, which was 17.9% in 2024, its lowest level in five years.
Investors may argue that this is a small slowdown in the EV market, but that does not seem to be the case when looking at competitors. In the United States, EV sales grew 15% year over year in the fourth quarter, with Tesla's market share continually eroding.
Internationally -- especially in China -- the competitive threats are worse from the likes of BYD. The company has taken a ton of market share from Tesla and now sells more cars globally, although at cheaper prices.
Add it all up, and it is no surprise to see Tesla's stock collapsing this year. Net income is down to $7 billion compared to a high of $15 billion less than two years ago.
Pivoting to humanoid robots, AI, and robotaxis
The EV segment looks weak for Tesla. But the company and Musk might argue that this is not where the future value of the business will come from. For many quarters now, management has been talking about its developments in artificial intelligence (AI), humanoid robots, and robotaxis.
These are exciting technologies that could open up new markets for the company. However, it is hard to see what tangible progress it has made. Promises of self-driving Tesla robotaxis have been made for many years, with management consistently telling us they are just around the corner. So far, no product has made it to market.
NASDAQ: TSLA
Key Data Points
The humanoid robot prototype called Optimus has a lot of potential but was controlled by humans at its debut event in 2024. AI is a crowded field, and Musk seems to be investing most of his time and money into the xAI Grok language tool instead of Tesla.
Call me skeptical, but I will believe it when I see these products. There have been a lot of promises from the company in recent years with little to show for it besides some minor upgrades to the EV lineup.
Even though management has a bold vision, it doesn't mean that vision will come to life. Nothing is guaranteed in business or investing.
TSLA Net Income (TTM), data by YCharts; TTM = trailing 12 months.
Will Tesla's profits 10x in five years?
Tesla and Musk may hope for an approximate multiple of 10 for profits in five years (1,000% is actually an 11 multiple, but let's simplify things). That doesn't mean it will happen.
With its market share eroding in EVs and no new products that have actually come to market, it is hard to envision a reason for Tesla's profits to go up tenfold in just five years. For that reason, I think the stock is one to avoid right now.
Even if profits miraculously go from $7 billion to $70 billion, the stock would still not be overly cheap, especially for a hardware and automotive manufacturer. Today, Tesla has a market cap of $875 billion. If the company generates net income of $70 billion, that would give the stock a price-to-earnings ratio (P/E) of 12.5.
General Motors has an earnings multiple of 7.5. What this means is that Tesla will still be valued at a higher P/E than General Motors if its net income goes up tenfold.
This does not seem like a good buying opportunity for investors focused on a business' fundamentals. Avoid Tesla despite Musk's grand profit projection.
