Earlier this year, Cathie Wood made another bold prediction about Tesla (TSLA +0.91%). The founder of ARK Invest -- one of the most popular providers of actively managed exchange-traded funds (ETFs) -- said that Tesla stock would hit $2,600 in five years.
That would be more than 10 times its current price of about $225 and would mean the company would be worth close to $10 trillion in market capitalization.
This is a fantasy. Investors need to forget these uber-optimistic bull cases for Tesla and look at the underlying fundamentals of the business, which are not pretty. It is extremely unlikely that the stock will rise 10-fold in the next five years. Here's what's more likely to happen instead.
Falling demand around the world
The vast majority of Tesla's current $720 billion market cap comes from its electric vehicle (EV) business, and right now, this business is struggling to grow. In the first quarter of 2025, the company delivered 337,000 vehicles to customers while producing 363,000. This is down from 387,000 in the same quarter a year ago and the lowest delivery figure since the third quarter of 2022.
As deliveries go, so will revenue growth. In fact, revenue will almost assuredly fall faster than deliveries in the first quarter when we see the company's financial report next week, due to the falling sticker prices on its vehicles.
In the fourth quarter of 2024, Tesla's deliveries grew slightly, but automotive revenue slipped 8% year over year. The first quarter is going to look worse with the sharp decline in deliveries, and profit margins are about to get hit as well. The operating margin has been cut in half over the last few years, hitting 8% in the last 12 months.
Tesla is losing market share in China, Europe, and major markets in the U.S. such as California. The EV revolution is still chugging along, but for whatever reason, shoppers are choosing competitors. This is a problem for Tesla that investors should not ignore.
Risky bets on autonomous robots
With the EV market drying up, Chief Executive Officer Elon Musk is aiming for some new markets to explore. These include things like the autonomous driving Cybercab and other artificial intelligence (AI) initiatives. However, the founder seems to be investing in AI at a whole new start-up called xAI, which Tesla investors have no exposure to.
NASDAQ: TSLA
Key Data Points
Another new product management has hyped is its Optimus humanoid robot, which it claims will hit pilot production in 2025. Call me skeptical on this timeline.
At its Cybercab event last year, the Optimus robots in attendance were remotely controlled by humans, which is not how they are supposed to operate. Investors should take it with a grain of salt when listening to Musk claim that Optimus has a $10 trillion revenue opportunity. Let's get a working prototype first before believing this product will be 50 times larger than iPhone annual sales.
All this is to say that Tesla may have some innovative products in research and development, but that is true for most technology companies. It will be years before autonomous robots are meaningful to Tesla's bottom line, if the product line is ever commercially successful.
Contrary to what some may think, Tesla has produced some flops over the years, including the solar roof tile, the Cybertruck, and Tesla Semi. These have all lost money.
TSLA PE Ratio data by YCharts.
Where Tesla stock is headed next
Tesla's earnings are falling and will keep falling for the rest of 2025. And yet, the stock trades at a premium earnings multiple. Its trailing price-to-earnings ratio (P/E) is 118, which is more than any other "Magnificent Seven" stock. Remember: This P/E ratio is likely to go up in 2025 with deliveries set to fall, taking earnings with them.
This does not look like an ideal time to invest in Tesla. During the next five years, I think the stock is in for a world of hurt. I wouldn't be surprised if shares fall 50% or more five years from now as the stock's P/E ratio declines. This is a company with falling sales, narrowing profit margins, and no new products to drive growth in the near term.
Instead of $2,600, Tesla is much more likely to be below $100 in five years. Buy some other stocks for your portfolio instead.
