Tesla Stock Has Lost Nearly a Fifth of Its Value This Year. Buy The Dip?
Following an extraordinary 2023 and 2024, when Tesla (NASDAQ: TSLA) shares rose 102% and 63%, respectively, the stock is facing different sentiment in 2025. As of this writing, shares are down more than 18% year to date.
The growth stock's recent pullback raises the question: Is now a good time to buy shares of the electric-car maker? After all, Tesla CEO Elon Musk recently told investors in the company's fourth-quarter earnings call that he sees "a path" to the company potentially becoming "the most valuable company in the world by far." If Musk is right, today's pullback would represent an extraordinary buying opportunity.
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Reasons to be optimistic
At face value, Tesla stock looks wildly expensive. Shares currently trade at about 163 times earnings. This is especially difficult to comprehend when looking at the company's most recent quarterly results when total revenue grew just 2% year over year and net income fell 71%. Companies with this sort of fundamental performance usually command price-to-earnings multiples far lower.
But those who are bullish on Tesla stock often explain that its valuation is based on what the company has in the pipeline. For instance, Tesla told investors in its fourth-quarter earnings call that it would be launching testing of its unsupervised full self-driving taxi service in June in Austin. Tesla believes that eventually, all the vehicles it sells will be capable of driving themselves and will be able to be deployed into the taxi network to earn Tesla and the owner of the vehicle money.
Looking beyond this "robotaxi" service, as Tesla calls it, the company also has a fast-growing energy storage business. Tesla's energy generation and storage revenue rose 113% year over year in Q4. This put the segment's total revenue at more than $3 billion, or 12% of total sales. Tesla believes this fast-growing business will grow to represent an even larger portion of the company's overall business over time.
Then there's Tesla's product development of humanoid robots. Though Tesla isn't selling any humanoid robots yet, Musk is confident that this will become a major driver for the business in the years ahead. Tesla plans to start humanoid robot production this year.
All of these product aspirations have the potential to create incredible shareholder value over the next five to 10 years. The bull case for Tesla stock is that one or more of these big bets, along with an expected reacceleration in auto sales, will pay off handsomely over the long haul, helping the automaker easily live up to its sky-high valuation.
Reasons to be skeptical
Of course, skeptics point out how uncertain and risky these business ventures are. Producing humanoid robots, for instance, will be extremely capital-intensive. Additionally, it's difficult to quantify how successful Tesla will be in deploying a robotaxi service. Further, Telsa's energy storage business requires rapid growth in battery production, and Tesla may have to choose between allocating those batteries to cars or energy projects in years where there are constraints on battery production.
Still, investors shouldn't shy away from the stock just because there are risks to Tesla's bold plans for the future. There's always risk involved in buying shares of publicly traded companies. No one knows the future. But it might make sense to watch from the sidelines for now, hoping for a chance to buy the stock at an even better price. A lower price would reduce some of the risks associated with potentially overpaying for the stock.
Alternatively, it might make sense to buy the stock at its current price if fundamentals dramatically improve over the next six to nine months. Also, if future earnings calls provide more visibility into a clear product roadmap, then maybe it would be easier to justify the stock's current price.
For now, investors should approach Tesla stock with a skeptical eye. This is a fair way to think about shares given their current valuation.
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Daniel Sparks and/or his clients have positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
