Tesla’s stock soared 70% in 2024 after Elon Musk backed Donald Trump’s presidential campaign, but the company’s financial performance is a different story. Despite its high valuation, Tesla’s electric vehicle sales declined by 1.1% from last year, and its stock price is now questionable.
The main reason for this decline is Tesla’s expensive valuation, which is out of line with other tech stocks in similar valuations. The company delivered $3.65 in earnings per share over the last four quarters, but its P/E ratio stands at 104, making it significantly more expensive than its peers.
Furthermore, Tesla’s electric vehicle business still accounts for 79% of its revenue, and if this part of the business doesn’t perform well, it’s hard to justify further upside in its stock price. The company plans to launch a new affordable EV called the Model Q, but it’s unclear how this will help improve sales.
Tesla’s focus on full self-driving technology, including its Cybercab robotaxi, might be a game-changer for revenue generation, but meaningful returns are likely years away. The company aims to build its own ride-hailing network and sell the Cybercab for personal use or fleet ownership, but this won’t happen until 2026.
As a result, investors are taking a risk by paying a premium for Tesla stock in hopes of seeing FSD revenue soon. However, if the company’s financial results continue to be driven by EV sales, its valuation might not justify the current price. With a market capitalization of $1.2 trillion, a 16% decline would drop it out of the trillion-dollar club.
Source: https://www.fool.com/investing/2025/01/05/prediction-ai-stock-drop-out-1-trillion-club-2025