Shares of Tesla (TSLA +0.70%) are up a whopping 672% in the past five years and 2,050% in the past decade. However, investors have had to deal with tremendous levels of volatility, which doesn't make owning the disruptive business easy at all. And after a post-election surge, the stock is now down 45% from its peak.
As of this writing, Tesla trades below $300 per share. Does this price make the electric vehicle (EV) stock a smart buying opportunity?
Hitting the brakes
Between 2013 and 2023, Tesla's growth was truly spectacular. Revenue surged 48-fold during that time, thanks to expanding vehicle production and rising deliveries. The business made a name for itself by bringing EVs to the masses, driving strategic shifts in the broader industry, a vertically integrated approach, and of course, well-designed and tech-forward cars.
The Tesla brand became somewhat of an icon. But macro pressures, like higher interest rates and softer consumer confidence, and industry headwinds, namely competition, have forced the company to pump the brakes. Tesla is now facing a new reality.
First of all, the growth machine has come to a halt. Tesla delivered slightly fewer cars in 2024 than it did in the previous year, its first ever decline. Revenue in 2024 was up just 1% compared to the year before.
To its credit, Tesla's investments in manufacturing capabilities helped optimize cost of production, leading to profitability. The business reported positive net income in five straight years, an ongoing streak, something rivals wish they could say.
But margins are taking a hit. Gross profit and operating income in Q4 were down 6% and 23%, respectively, versus the same period a year ago. That's not an encouraging trend.
NASDAQ: TSLA
Key Data Points
Vision of the future
Founder and CEO Elon Musk continues to tell investors to focus on the long term. Yes, Tesla is a seller of EVs now, but far into the future, the company will be different.
Robotaxis have been getting all the attention. Tesla has been working on autonomous driving software for a long time. And it made news late last year with the introduction of the Cybercab, which will go into production in 2026, with plans to start a ride-hailing service this summer in Austin, Texas.
Theoretically, the economic implications are huge. Assuming Tesla can get its technology to become fully unsupervised and clear regulatory hurdles in different markets, it could start a global robotaxi service similar to what Uber has today. The only difference is that there would be no need for drivers. And Tesla could collect high-margin revenue in the process for something that could have significant demand.
The company's humanoid robot, Optimus, is another project that Musk thinks has even greater potential than autonomous driving. Production will start this year for these machines that will be used in Tesla factories. Selling these to other businesses is another opportunity down the road.
"Optimus has the potential to be north of $10 trillion in revenue," Musk said on the Q4 2024 earnings call.
Narratives matter more than fundamentals
Tesla remains a story stock. In other words, narratives continue to hold more weight than the underlying fundamentals. Besides being a tech genius, Elon Musk deserves credit for his ability to craft the right story to drive investor interest, which has led to a valuation premium.
What would you pay for an EV business that has proven to be very sensitive to macro factors, is facing increasing competition, is seeing growth slow, and whose profitability is weakening? I'm positive it wouldn't be a price-to-earnings ratio of 129. It probably wouldn't even be half that.
Tesla shares might be trading under $300 and well off their record. However, they still don't look like a compelling buying opportunity right now.
