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Tesla (TSLA) shareholders are increasingly concerned that CEO Elon Musk’s attention is being diverted from the electric vehicle company’s core operations. And their worries may not be unfounded.
The Musk-led company reported a yearly decline in vehicle deliveries in 2024 for the first time ever. Tesla sold 1.79 million vehicles in 2024, down 1.1% from 2023. Moreover, even the 2% boost in Q4 deliveries to 495,570 vehicles was modest, and projections from analysts at FactSet indicate that Tesla’s average vehicle sales price is expected to decline to slightly above $41,000 for the quarter. Adding to the misery, Tesla sales in Europe fell by 45% from the previous year.
This has all led to the company’s stock correcting by more than 32% on a year-to-date basis, valuing it at a market cap of $915.6 billion.
So, to stop his decline, Tesla is looking to diversify its revenue sources. And its latest efforts include a ramp-up of its ride-hailing bet.
Tesla Makes a Ride-Hailing Bet
According to a recent Bloomberg report, Tesla has submitted an application to the California Public Utilities Commission for a transportation charter-party carrier permit, which would grant the company the ability to own and operate its fleet of vehicles. This move positions Tesla as a direct competitor to established ride-hailing services such as Uber (UBER) and Lyft (LYFT), as well as to Google’s (GOOGL) Waymo, which also operates a robotaxi fleet.
Previously, Musk stated that Tesla intended to launch its driverless ride-hailing service in Austin by June, with plans to expand to California before year-end, although he did not provide further specifics.
The ride-hailing market is a lucrative one that is expected to grow further in the coming years. In 2023, revenue from ride-hailing services in the United States reached approximately $52 billion. This figure is projected to increase to around $61 billion by 2029, indicating a steady upward trend. The number of ride-hailing users in the United States is anticipated to reach 99.94 million by 2029.
So, is Tesla’s ride-hailing bet enough to warrant an investment? Let’s have a closer look.
Steady Financials
Even after missing revenue and earning estimates in Q4, Tesla reported growth. Its revenue moved up by 2% from the prior year to $25.71 billion, and its earnings increased by 3% in the same period to $0.73, missing the consensus estimate of $0.75.
Although the decline in vehicle deliveries was a disappointment, growth in some other key metrics was positive. Tesla reported a 17% and 19% year-over-year rise in charging stations and connectors to 6,975 and 65,495, respectively.
Net cash from operating activities came in at $4.8 billion, higher than the previous year’s figure of $4.4 billion with a marginal decline in free cash flow to $2.03 billion. Overall, Tesla ended the year with a hefty cash balance of $36.6 billion, much higher than its short-term debt levels of $14.9 billion.
Encouraging Developments But….
Beyond its core vehicle manufacturing business, Tesla’s high-margin services and energy divisions are playing an increasingly vital role in its financial performance. The company continues to expand its energy operations on a global scale, focusing on solar solutions and Megapack deployments. To support this growth, Tesla has established new production sites in Texas and Shanghai. The Texas facility, in particular, houses a 50,000-GPU compute cluster aimed at optimizing costs and reducing dependence on third-party computing services. This in-house infrastructure will accelerate advancements in Tesla’s Full Self-Driving (FSD) technology, aid the development of its Optimus humanoid robot, and further integrate the company’s hardware and software ecosystem.
At the same time, Tesla’s Shanghai-based battery plant has officially begun operations, adding further momentum to the company’s energy business. This segment holds immense potential, as demonstrated by products like the Megapack 2 XL, which boasts an energy storage capacity of up to 3.9 megawatt-hours and an inverter output exceeding 1.9 megawatts. To put this into perspective, a single Megapack 2 XL can power approximately 3,600 homes for an hour or fully recharge 65 Model 3 vehicles.
Tesla’s progress in robotics is also advancing at a rapid pace. The company’s humanoid robot, Optimus, is already deployed in Tesla’s own factories and is being refined using a data-driven learning model akin to FSD. This positions Tesla at the forefront of autonomous robotics, with potential applications extending well beyond the automotive industry, reinforcing its leadership in AI and automation.
Despite Tesla’s AI capabilities being frequently overlooked, the company is deeply committed to its artificial intelligence initiatives. The Dojo supercomputer is a prime example, utilizing AI to enhance, refine, and sustain Tesla’s expansive FSD ecosystem. This integrated approach gives Tesla a significant competitive advantage, enabling it to provide a fully comprehensive autonomous driving solution rather than focusing on a single niche aspect.
However, with these ambitious projects, the company’s ability to execute effectively and translate innovations into sustained profitability remains crucial. Under Musk’s leadership, Tesla thrives on disruption, but consistency has often been elusive. While Musk has faced criticism for repeatedly missing product timelines, his confidence in Tesla’s long-term vision continues to resonate with both supporters and skeptics alike.
Analyst Opinion on TSLA Stock
Taking all of this into account, analysts have deemed the Tesla stock a “Hold” with a mean target price of $351.67. This denotes upside potential of about 33% from current levels. Out of 39 analysts covering the stock, 13 have a “Strong Buy” rating, two have a “Moderate Buy” rating, 14 have a “Hold” rating, and 10 have a “Strong Sell” rating.
