For years, Tesla’s (TSLA) stock has thrived on investors’ unwavering confidence in its CEO, Elon Musk. His reputation as a visionary leader and the company’s position at the forefront of futuristic technology kept optimism high. Tesla’s advancements in full self-driving (FSD) technology, artificial intelligence (AI), Optimus humanoid robots, and the much-anticipated robotaxi service have fueled excitement, even when financial performance has fallen short.
While these ambitious projects could open up lucrative new revenue streams, they have yet to meaningfully impact Tesla’s bottom line. Despite this, Tesla’s stock price seemed disconnected from the company’s actual financial performance, especially toward the end of 2024.
Even as Tesla faced challenges, its stock continued to trade at premium valuations. Investors appeared unfazed by weaker-than-expected earnings. Moreover, Tesla has resorted to price cuts to boost sales over the past year, which impacted margins, yet the market’s faith in Musk kept the stock afloat.
However, this disconnect is now facing a reality check. The first warning sign came earlier this month when Tesla reported weaker sales in China. Then, the European Automobile Manufacturers’ Association reported that Tesla’s sales in Europe plunged by over 45% year-over-year in January, even as the overall EV market experienced strong growth.
The numbers paint a concerning picture. Tesla registered just 9,945 vehicles in Europe last month, a steep decline from 18,161 a year prior. Meanwhile, EV sales across the broader industry surged 37.3%, with major automakers posting strong gains in key markets like Germany and the United Kingdom.
These troubling trends have already sent Tesla’s stock tumbling 25.5% in just one month, dragging its market capitalization below the $1 trillion mark. And the downward pressure may not be over. Despite the sharp selloff, Tesla’s valuation still appears elevated, while the company’s sales momentum continues to falter. If these headwinds persist, investors may need to brace for even more downside ahead.
The Road Ahead for Tesla
Tesla’s short-term financials could face headwinds due to lower international deliveries and increasing competition. However, its long-term fundamentals remain solid, driven by its investments in improving manufacturing, AI, and robotics. These initiatives position Tesla for significant growth in the long run.
Tesla stock could benefit from its product roadmap. The company plans to introduce a more affordable model in the first half of the year, which is expected to drive higher volumes and strengthen Tesla’s market share.
Further, Tesla’s advancements in Full Self-Driving (FSD) technology also present a major long-term growth opportunity. The company aims to deploy supervised FSD in Europe and China in 2025 while working toward an eventual unsupervised driving option. CEO Elon Musk remains confident that widespread adoption of FSD across North America could materialize as early as next year, further enhancing Tesla’s competitive edge. In parallel, Tesla’s highly anticipated Robotaxi service is on track for an initial launch in select U.S. markets later this year, potentially unlocking a lucrative new revenue stream.
Beyond autonomous driving, Tesla is focusing on its Optimus project. The humanoid robots are expected to be delivered to businesses by the second half of 2026, opening new frontiers in automation and labor efficiency. This initiative could be a significant value driver for Tesla’s long-term growth.
On the financial front, Tesla’s cost optimization efforts are improving margins. Thanks to efficiencies in raw material sourcing and manufacturing, the company has reduced its cost per vehicle to below $35,000. These improvements are helping offset the impact of Tesla’s investments in financing and leasing programs.
Tesla’s energy segment is another bright spot, achieving record gross profit in the fourth quarter. The recently completed Megafactory in Shanghai is set to scale production in the coming months, further strengthening Tesla’s energy business. Meanwhile, the Powerwall division continues to gain traction, with record deployments driven by the expansion of Powerwall 3 into new markets.
While Tesla faces near-term volatility, its focus on innovation, cost efficiencies, and new market opportunities reinforces its long-term investment appeal.
The Bottom Line on Tesla Stock
Tesla faces short-term headwinds, including softness in EV demand, intensifying global competition, and margin pressures. Another key concern for investors is Tesla’s valuation. TSLA stock is trading at a forward price-earnings (P/E) ratio of 129x — substantially higher than that of its industry peers.
These challenges have led to a more cautious stance among analysts, as reflected in Tesla’s current “Hold” consensus rating on Wall Street.
However, if the stock experiences further declines, it could lead to a more attractive valuation, offering a good buying opportunity for those with a long-term perspective. Tesla’s advancements in AI, autonomous driving, and robotics, its brand strength, and leadership in the EV space position it well for long-term growth.
