Tesla (NASDAQ:TSLA) stock has experienced significant volatility in recent years. After reaching all-time highs in November 2021, TSLA stock plummeted over 72% in the following 15 months. However, shares of the electric vehicle (EV) manufacturer have rebounded 25% in the past month, buoyed by its Q1 results and several high-profile announcements.
Despite the downturn, Tesla stock has delivered a staggering return of over 13,700% since its initial public offering (IPO) in July 2010, giving the company a market capitalization of $565.9 billion. Let’s examine if the worst is over for Tesla stock and whether it can continue its upward trajectory over the next 12 months.
Is Tesla A Good Stock To Buy Right Now?
Tesla’s first-mover advantage has allowed it to dominate the global EV market. This leadership position enabled Tesla to increase sales by 71% year-over-year in 2021 and 51% in 2022. However, rising interest rates, inflation, and a sluggish macroeconomic environment led to a sharp decline in demand for EVs, causing Tesla’s sales growth to slow to 19% in 2023. Additionally, the company’s revenue contracted by 9%, and operating income fell by 56% year-over-year in Q1 2024.
In response to weak demand, Tesla reduced vehicle prices multiple times over the past two years, which resulted in lower revenue and profit margins. Nevertheless, these price cuts helped Tesla grow deliveries by 38% year-over-year in 2023, compared to 40% growth in 2022. The company has also focused on reducing the cost of goods sold and operating expenses to improve its bottom line.
As part of these cost-cutting measures, Tesla recently reduced its workforce by 10%, with further reductions expected as it strives to reach its long-term goal of selling 20 million cars annually.
Affordable Cars and FSD Might Drive Growth
A major catalyst for Tesla’s recent share price increase was the company’s announcement that it will introduce lower-cost vehicles in 2025. These affordable vehicles are expected to help Tesla gain a strong foothold in emerging markets such as India, Southeast Asia, and Latin America.
Additionally, Wall Street is excited about Tesla’s Full Self-Driving (FSD) technology, which could eventually lead to the launch of a robotaxi service, potentially disrupting the ride-hailing market currently dominated by Uber (NASDAQ:UBER) and Lyft (NASDAQ:LYFT). A self-driving taxi service would allow Tesla to achieve significantly higher margins compared to Uber, as there would be no driver costs. During the Q1 earnings call, Tesla CEO Elon Musk predicted “quasi-infinite demand” for the robotaxi segment.
According to a research report by ARK Invest, the robotaxi market could generate around $440 billion in sales, nearly three times the size of the ride-hailing market in 2023.
Is Tesla Stock Undervalued?
Of the 32 analysts covering TSLA stock, eight recommend a “strong buy,” two recommend a “moderate buy,” 16 recommend a “hold,” and six recommend a “strong sell.”
The average target price for TSLA stock is $176.45, which is slightly lower than its closing price on Friday.
Analysts forecast Tesla’s sales to rise by 2.2% to $98.87 billion in 2024 and by 17.4% to $116 billion in 2025. While adjusted earnings are expected to decrease from $3.12 per share in 2023 to $2.53 per share in 2024, they are projected to improve to $3.31 per share in 2025.
By 2028, Tesla is forecasted to achieve adjusted earnings of $6.50 per share, based on consensus estimates. If TSLA stock trades at 30 times forward earnings, it would be valued around $195 in May 2027, indicating an upside potential of just 10% from current levels.
