Tesla (TSLA +0.28%) can be one of the most exciting, albeit frustrating, stocks to own in the entire capital market.
As of this writing, shares of Tesla cratered by 44% in 2025. This is a dismal performance compared to the declines witnessed in the S&P 500 and Nasdaq Composite, which dropped by 4% and 9%, respectively.
If you zoom out even just a little bit, though, things don't look horrific. Over the last 12 months, shares of Tesla are still up by 37% -- much stronger than the gains of both the S&P 500 and Nasdaq.
It's odd to see a stock outperform the market so significantly over the last year and yet simultaneously be down by a considerable margin over the last few months. These dynamics imply that shares of Tesla were, at some point over the last year, exponentially higher than they are trading today.
The precise period during which Tesla stock kicked into a parabolic gear came around the time of the presidential election. Following President Donald Trump's victory on Nov. 5, Tesla stock soared to all-time highs. But now, with shares down roughly 51% from prior highs, what direction could Tesla stock be headed next?
Let's explore what New York University's Aswath Damodaran -- better known as the "Dean of Valuation" -- thinks about Tesla stock. Below, I'll detail the factors driving the ongoing sell-off in Tesla stock and assess Damodaran's latest price prediction. From there, I'll offer my own perspective on whether I see now as a good opportunity to buy the dip in Tesla stock or not.
NASDAQ: TSLA
Key Data Points
What's driving the sell-off in Tesla stock?
In Damodaran's analysis, the acclaimed finance professor lists three primary factors influencing the current price action in Tesla stock.
First, Damodaran references softening demand in the electric vehicle (EV) market as one headwind for Tesla. Piggybacking off of this idea, the second major point Damodaran makes revolves around Chinese EV manufacturer BYD as a meaningful competitive threat.
While Damodaran appears to be bullish on the overall long-term growth of the EV market, he sees Tesla remaining as a product marketed toward premium buyers, whereas BYD will have more success acquiring the "mass market."
The last parameter Damodaran accounts for is Tesla CEO Elon Musk's foray into politics. With Musk spending substantial time in Washington leading the Department of Government Efficiency (DOGE), some investors have become worried that the entrepreneur could be losing focus on Tesla's roadmap.
All told, Damodaran is forecasting a share price of $148 for Tesla, which indicates roughly a 38% decline in current trading levels.
Image Source: Tesla
Here's my take
Damodaran isn't wrong about softening EV demand. In 2024, revenue from Tesla's EV business declined by 6% year over year. Moreover, the company's production and delivery stats also dropped -- potentially signaling that Tesla could be facing pressure from competition and fading consumer willingness to pay a premium for its expensive vehicles.
In addition, given BYD's popularity across both China and Europe, it's tough to argue with Damodaran's point that Tesla may face some pricing pressure from the competition and the impact that could have on customer acquisition. My only caveat is that Tesla's management team has been talking about launching a lower-priced EV for a couple of years now. While the timeline for initial manufacturing for this new model appears to be slated for this year, Tesla does have a history of missing deadlines.
The one area where I think Damodaran could be exercising some caution is artificial intelligence (AI). While Damodaran references autonomous driving software and robotaxis as potential catalysts, his forecast appears conservative relative to some on Wall Street.
For example, in his model Damodaran projects a total of $188 billion in free cash flow to Tesla over the next decade. However, as my fellow Fool Trevor Jennewine recently pointed out in his recent piece about Tesla, analysts at Morgan Stanley have called for annual profits of $120 billion from robotaxis by 2040. Moreover, longtime Tesla bull Ron Baron, a mutual fund manager, thinks robotaxis could generate as much as $375 billion of annual profits by 2040.
There are a couple of ideas I should expand upon here. First, Damodaran's model only runs for 10 years, whereas Morgan Stanley and Baron are looking beyond the middle of the next decade. Furthermore, the profitability ranges from Wall Street's robotaxi estimates are quite wide. Damodaran's 10-year forecast is calling for steady, smooth increases in cash flow each year as opposed to an exponential rise.
To me, this is where the real nuance comes into play. If Tesla fails to scale robotaxis to meet Wall Street's targets or if the company's self-driving software does not yield the customer acquisition numbers that bulls think it will, then Tesla will face quite a bit of pressure.
My final take is that I think Tesla stock will continue to face downward pressure in the near term, and so Damodaran's price target could very well become reality. With that said, I think the long-term upside in Tesla -- from autonomous driving, robotaxi fleets, and humanoid robotics -- is virtually impossible to model right now. As a longtime investor in Tesla myself, I am cautiously optimistic that Musk will pull off his vision, and I think the company will enter a long chapter of sustained, robust profitability underscored by generational breakthroughs in AI.
For these reasons, I would employ a dollar-cost averaging strategy and take advantage of any ongoing dips in Tesla stock. Investors with a long-term horizon who are willing to stomach volatility and exercise patience and discipline could be looking at profound gains 10 years from now and beyond.
