Tesla’s (TSLA) stock continued its downward trajectory in March, following a 28% plunge in February, its steepest monthly decline since December 2022. Today, Tesla stock trades 44% below its all-time highs, valuing the company at a market cap of $875 billion.
The slide to start March came despite CEO Elon Musk’s weekend claim that a “1000% gain for Tesla in 5 years is possible” with “outstanding execution” and Morgan Stanley naming Tesla its top pick in U.S. autos.
Tesla’s Q4 earnings revealed concerning trends, with automotive revenue dropping 8% year-over-year and operating income falling 23%. It named reduced selling prices, done to drive sales, across its vehicle lineup as a major factor.
The EV maker also faces headwinds from President Donald Trump’s new tariffs on goods from Canada and Mexico, where some key Tesla suppliers are based. Moreover, Musk’s increasing political profile appears to be taking a toll on Tesla’s performance and reputation. As head of the Department of Government Efficiency (DOGE), he’s making sweeping cuts while pursuing government contracts for his companies.
Anti-Tesla sentiment has surged across Europe, with vehicle registrations declining sharply in multiple countries. In Germany, registrations plummeted approximately 60% in January compared to the previous year.
Meanwhile, according to a CNBC report, Tesla trails competitors like Waymo in self-driving technology, with Alphabet’s (GOOGL) subsidiary now providing 200,000 trips weekly across major U.S. cities.
Morgan Stanley Is Bullish on Tesla Stock
Earlier this week, Morgan Stanley analyst Adam Jonas reinstated the electric vehicle maker as his top U.S. auto pick. Jonas cited Tesla’s artificial intelligence and robotics initiatives as potential growth drivers despite its core automotive business challenges. The long-time Tesla bull maintained his $430 price target — suggesting an upside of over 40%.
Tesla’s annual vehicle deliveries declined for the first time in 2024. According to Jonas, this signals Tesla’s transformation from an “automotive pure play to a highly diversified play on AI and robotics.”
This perspective aligns with Musk’s strategic pivot toward robotaxis and AI over the past year, despite skepticism about near-term adoption due to regulatory and technological hurdles. Jonas forecasts possible delivery declines in 2025 but views this as an “attractive entry point” for investors.
Tesla Sets Sights on AI and Robotics
Tesla achieved record-breaking Q4 deliveries at an annualized rate of nearly 2 million vehicles, with Model Y crowned the best-selling vehicle globally in 2024. Despite these achievements, Musk focused on Tesla's AI and robotics initiatives, which he predicts will drive exponential growth.
Tesla plans to launch unsupervised Full Self-Driving (FSD) in Austin by June 2025, with thousands of cars already operating autonomously at the Fremont factory. Musk emphasized the dramatic safety improvements seen with supervised FSD and promised significant advancements with the upcoming Version 14.
Tesla’s humanoid robot Optimus represents another key growth vector, with plans to produce several thousand units in 2025. Musk made bold claims about Optimus’s potential to generate “north of $10 trillion in revenue” long term.
Energy storage deployments reached an all-time high in Q4, with the business remaining supply-constrained. Tesla expects at least 50% growth in deployments year-over-year in 2025 as Shanghai’s Megafactory comes online.
While automotive margins declined quarter-over-quarter due to lower average selling prices, Tesla reduced per-vehicle costs below $35,000. Despite significant AI-related capital expenditures, the company generated $2 billion in free cash flow for Q4 and $3.6 billion for the year.
Is TSLA Stock Undervalued?
Analysts tracking Tesla expects its sales to rise from $97.7 billion in 2024 to $112 billion in 2025 and $134 billion in 2026. Comparatively, adjusted earnings are forecast to expand from $2.42 per share in 2024 to $2.85 per share in 2025 and $3.78 per share in 2026. Free cash flow is expected to improve from $3.58 billion in 2024 to $5.6 billion in 2025 and $8.29 billion in 2026.
So, TSLA stock is priced at 6.5x forward sales, 72x forward earnings, and 105x forward free cash flow, which is quite expensive. Out of the 40 analysts covering Tesla stock, 13 recommend “Strong Buy,” three recommend “Moderate Buy,” 14 recommend “Hold,” and 10 recommend “Strong Sell.” The average target price for TSLA stock is $351.67, roughly 30% above the current trading price.
