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Tesla (TSLA) stock is in the spotlight with its impressive year-end rally. Shares of this electric vehicle (EV) maker are up about 39% in one month and have more than doubled in the last three months.
This impressive rally follows several positive developments. One key factor behind this surge is favorable political dynamics. Elon Musk’s vocal support for President-elect Donald Trump has raised expectations that the Trump administration might create a more favorable regulatory environment for Tesla. In particular, regulatory changes related to autonomous driving technologies could substantially boost Tesla’s plans for scaling autonomous vehicles (AVs), including its highly anticipated robotaxi fleet.
The potential for more relaxed regulations on self-driving vehicles is significant for Tesla, as it could accelerate the development and deployment of its Full Self-Driving (FSD) technology. This is especially crucial as competition is intensifying.
Further, Tesla’s recent Q3 financial results have added to the optimism. During the quarter, Tesla delivered both volume growth and a notable decline in the cost of goods sold (COGS) per vehicle, which supported its margins and earnings. The company marked growth in vehicle deliveries both sequentially and year-on-year, resulting in record Q3 volumes. Further, its COGS per vehicle was at the lowest level at about $35,100.
The Road Ahead for Tesla Stock
Tesla’s long-term prospects remain bright. The Trump administration's loosening of autonomous driving regulations and a potential repeal of consumer electric vehicle tax credits could benefit Tesla over its competitors. Additionally, Tesla’s leadership in EVs, energy storage, and charging infrastructure positions it to weather economic headwinds more effectively.
The company’s leadership remains optimistic about its growth, particularly in vehicle sales. Tesla is on track to deliver more affordable models starting in the first half of 2025, with an expected vehicle growth rate of 20% to 30% next year. The long-awaited Cybercab, which is expected to reach volume production in 2026, could further elevate Tesla’s growth, with plans to eventually produce at least 2 million units annually, potentially reaching 4 million in the long run.
In addition, Tesla’s advancements in FSD technology are also noteworthy. In Q3, the company released the 12.5 series of FSD (Supervised), which improved safety and comfort with an increased data and training compute capacity. Tesla’s neural networks for highway driving were also made available to Cybertruck customers for the first time. These advancements reflect Tesla's commitment to accelerating its autonomous driving capabilities.
In addition to its vehicle business, Tesla's energy storage division is experiencing impressive growth. With solid demand for Megapack and Powerwall, the company’s energy storage pipeline continues to expand, providing a solid base for future growth.
Risks That Tesla Investors Should Be Aware Of
Despite the positive outlook, caution is warranted. Tesla’s stock price has become relatively expensive, reflecting much of the optimism already priced in. The company’s focus on growing unit volumes while avoiding inventory build-up could continue to exert pressure on margins, especially as Tesla might rely on highly competitive financing options to maintain strong sales.
The EV market is also becoming increasingly crowded, with traditional automakers and new entrants ramping up their electric vehicle offerings. This heightened competition could dent Tesla’s market share and pricing power, challenging its ability to maintain its leadership in the EV space.
Wall Street analysts remain cautious overall, and maintain an average “Hold” rating on Tesla stock. While the company’s long-term prospects remain bright, the stock’s high valuation and increasing competition are concerns.
The Bottom Line on Tesla Stock
Tesla is poised for long-term growth, driven by innovation in autonomous driving, the launch of affordable EV models, and momentum in energy storage. However, much of this optimism is already reflected in the stock’s current price.
As competition heats up and valuation concerns linger, Tesla’s rally may face hurdles in 2025. Investors might consider waiting for a pullback before adding Tesla stock to their portfolios.
