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Tesla (TSLA) has had a trying start to 2025 as the company faces weakening demand for electric vehicles (EV), mounting competition, and price pressures. The company has also been losing ground in China to domestic automakers like BYD (BYDDY). Tesla’s release this week of its Full Self-Driving (FSD) software in China has been closely followed with the anticipation that it will be a growth driver.
Industry-wide trends demonstrate a competitive and shifting EV landscape. Global demand has cooled in the EV sector, but Tesla maintains the leading position in autonomous technology. Its China FSD launch has the power to be a critical top-line driver of growth with the company testing the limits of software-centric monetization models. Regulatory barriers, matters of safety, and competitive forces will play a crucial part in determining if this catalyst will be sufficient enough to alter the trajectory of Tesla’s shares.
About Tesla Stock
Tesla (TSLA) is a leading EV manufacturer and tech company based in Texas with a market capitalization of more than $900 billion. The company deals in the design and production of electric vehicles, autonomous drive technology, and battery storage solutions.
Tesla shares have been on a downward trajectory, falling roughly 30% in the year to date compared to the S&P 500 Index ($SPX), which has returned 1%. Over the past year, the stock is up 43% but has been volatile, trading between $138.80 and over $488.54. While Tesla’s global deliveries declined for the first time in 2024, the company set a record in China, selling over 657,000 vehicles.
Tesla’s valuation remains elevated relative to that of its industry peers. Its trailing price-earnings ratio stands at 147x, with a forward price-earnings ratio of 118.5x. The company trades at 10 times sales and 78 times cash flow, significantly higher than competitors in the automotive sector. While Tesla’s premium valuation reflects its technological leadership, the stock’s pullback raises questions about its ability to justify these multiples in the face of slowing growth.
Tesla Beats on Earnings
In its Q4 2024, EPS of $0.66 beat expectations of $0.62. The estimated earnings for its Q1 2025 is $0.56, a whopping 60% increase over its Q1 2024 earnings of $0.35. The earnings and revenues of Tesla continue to face scrutiny as it struggles with pricing stress, competition from Chinese manufacturers like BYD, and macroeconomic factors. The market will be closely watching its next earnings announcement to judge its ability to continue its aggressive growth.
Tesla Plans Expansion of FSD in China
Tesla began launching a software update this week in China that will offer driver-assist features that will be identical to the company’s U.S. FSD capabilities. Tesla’s push into FSD capabilities in China comes at a crucial turning point. The full deployment of autonomous capabilities has been pushed back multiple times due to government oversight and concerns regarding safety, particularly in the wake of tales of FSD’s participation in crashes. The government’s posture toward the company will be a leading factor that will influence the success of the rollout.
Additionally, BYD released its own driver-assisting technology in a few models, which added additional pressure on Tesla. Tesla has been considering selling the rights of FSD to third-party automobile firms in China, which could earn it additional income and enhance the company’s standing in autonomous driving.
Despite macroeconomic volatility and weakening U.S. EV demand, China is a vital source of long-term growth for Tesla. Through FSD growth, the company might be able to realize a new source of revenue with the help of software subscriptions, easing the strains of price reductions and margin compression.
What Do Analysts Expect of Tesla Stock?
Tesla has a “Hold” consensus rating, and its average analyst rating has improved over recent months. Three months ago, the company had an average analyst rating of 3.11, which has gone up to 3.21 at the moment. Thirty-nine analysts track the company with 13 “Strong Buy” ratings, two “Moderate Buy” ratings, 14 “Hold” ratings, and 10 “Strong Sell” ratings. The move higher in the “Strong Buy” category does reflect that a few analysts do see upside coming with the catalyst of the China FSD rollout.
However, 10 “Strong Sell” ratings is evidence that many analysts are still skeptical about its premium valuation, pricing strategy, and competitive environment.
