Shares of electric-car maker Tesla (TSLA 3.98%) soared in May, climbing more than 23%. This was far greater than the S&P 500's 5.5% gain. The sharp move higher helped Tesla recover some of its losses from earlier in the year. Shares wrapped up the month down 14% year to date -- a big improvement from declines of more than 40% earlier this year.
The growth stock's surge higher came as Tesla CEO Elon Musk announced that he is stepping down from President Trump's Department of Government Efficiency (DOGE) initiative. Investors are also probably encouraged by the company's progress toward launching a self-driving ride-sharing network in Austin this summer. The autonomous ride-hailing service, which Tesla calls Robotaxi, is expected to be a game-changer for the company and the stock if it is successful.
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Tesla needs its CEO's full attention
One of the biggest reasons investors have been upbeat about Tesla stock recently is Musk's decision to begin winding down his involvement at DOGE at the beginning of last month. Musk said in Tesla's first-quarter earnings call that he would be "allocating far more of my time to Tesla," starting in May. Then, last week, the CEO went even further when he officially stepped down from the agency.
Musk's ambitious leadership has been pivotal to Tesla's growth over the years, and his growing number of responsibilities outside of the company was seen as a negative for the company. It's not surprising, therefore, that the stock has regained some ground as Musk followed through with his plans to give Tesla more of his attention.
Musk's attention comes at a time when Tesla is trying to reinvigorate sales growth. The company's automotive revenue fell 20% year-over-year in Q1. Investors are hoping that several major initiatives, including plans for new, lower-cost models and the launch of Robotaxi, will help revitalize Tesla's growth story.
Tesla stock's major catalyst
It would be difficult to overstate the importance of Tesla's Robotaxi service. Given Tesla stock's price-to-earnings ratio of more than 200 as of this writing, investors are clearly expecting strong revenue and earnings growth for years to come. A successful deployment of the company's planned autonomous ride-hailing network is key to this thesis.
The reason investors are so bullish on Tesla's robotaxi service is that the company has emphasized that most of the vehicles it has delivered to customers already will be capable of being deployed into the fleet. This means that the company's service can potentially reach a significant scale quite quickly, as customers who opt into the service use their existing vehicles to share in the revenue generated from the service. Therefore, the main limiting factor once Tesla proves that the service is safe will be getting the Robotaxi network approved for operation in various jurisdictions.
Musk said in a post on X in May that the company had already been testing self-driving Model Y vehicles without anyone in the driver's seat. So far, the tests have been incident-free, Musk said. This puts the service's rollout a "month ahead of schedule," he noted.
Importantly, Tesla is hoping that the its planned launch of its Robotaxi service in Austin, along with its new models later this year, will fuel demand for its vehicles and return the company to strong growth. Indeed, Tesla chief financial officer Vaibhav Taneja said in the company's first-quarter earnings call in April that these two catalysts should solicit "a new era of demand" for the company.
With Tesla seeming to approach a pivotal moment in which sales growth could spike, is the stock a buy today? While Wall Street is right to be more optimistic about the stock given recent news about Musk's increased involvement and the company's progress toward officially launching its autonomous ride-hailing service, the stock's recent move higher arguably already priced this news in. With this in mind, shares look more like a hold than a buy today.
