Stock of the Week - Tesla (13.03.2025)

Tesla Inc. (TSLA.US) shares have experienced extreme volatility this quarter, falling over 34% year-to-date amid mounting challenges that threaten the electric vehicle maker's once-dominant market position. While recent sessions have shown signs of recovery with the stock gaining 7.59% yesterday, investors remain concerned about Tesla's near-term prospects as the company navigates political controversy, intensifying global competition, and softening demand in key markets.

Brand Image & Political Fallout: 

CEO Elon Musk's high-profile role in the Trump administration has sparked unprecedented brand damage, with JPMorgan analysts comparing the situation to major geopolitical boycotts historically faced by Japanese and Korean automakers in China, stating they "struggle to think of anything analogous in the history of the automotive industry, in which a brand has lost so much value so quickly." Consumer sentiment surveys show dramatic shifts, with research firm Strategic Vision reporting that the percentage of car shoppers who would "definitely consider" a Tesla dropped from 22% in 2022 to just 7% by summer 2024, putting it on par with Lincoln and Dodge rather than luxury competitors Mercedes-Benz and BMW.

Global Sales Decline: 

The impact is already visible in Tesla's delivery figures, with February sales plummeting 49.2% year-over-year in China to 30,688 units (the lowest since July 2022), dropping 76.3% in Germany, and falling 65.5% in Australia for the first two months of 2025. While some decline can be attributed to Model Y production changes as Tesla refreshed its bestselling vehicle, analysts remain concerned about broader demand trends. JPMorgan has cut its Q1 delivery forecast to 355,000 units from 444,000, projecting full-year deliveries of 1.77 million, representing a 1% decline from 2024.

Vehicle Deliveries. Source: Company

China Partnership & Market Recovery: 

In positive developments, Tesla is collaborating with Baidu to enhance its Full Self-Driving system performance in China, with Baidu engineers working at Tesla's Beijing office to integrate more accurate mapping information for the FSD V13 software. Additionally, the company's refreshed Model Y is seeing strong demand in China, with reports indicating orders have crossed 200,000 units according to Chinese tech site 36kr. This surge could help Tesla rebound from February's disappointing 30,688 deliveries, especially as the Shanghai Gigafactory ramps up production of the updated model.

Strategic Pivot to Robotaxis & AI: 

Tesla's future increasingly depends on its autonomous driving initiatives, with plans to launch unsupervised Full Self-Driving in Austin by June 2025 before expanding across the U.S. The company aims to begin volume production of its "Cybercab" robotaxi in 2026, potentially creating a new revenue stream in the estimated $190 billion ride-hailing market. While the rate of progress toward Tesla's autonomous vision has been slower than initially promised, analysts at Morgan Stanley maintain their $430 price target (72% above current levels) based on Tesla's potential as an "embodied AI compounder."

Technological Developments. Source: Company

Analyst Outlook & Valuation Concerns: 

Despite recent price declines, Tesla still trades at approximately 89 times projected 2025 earnings, significantly higher than established AI leaders and traditional automakers. Bears argue this premium is unsustainable given current delivery trends, while bulls view the pullback as a buying opportunity based on Tesla's long-term technological advantages. Wedbush recently added Tesla to their "Best Ideas List," characterizing the current situation as a "gut-check moment" and focusing on the company's energy storage business, which is expected to grow over 50% this year.

Future Outlook: 

Looking ahead, Tesla faces a critical test with its Q1 delivery report in early April. While short-term challenges are undeniable, the company's refreshed Model Y, advancing autonomous capabilities, and growth in energy storage could provide stabilizing factors. However, Tesla must navigate the ongoing political controversy surrounding its CEO while fending off intensifying competition, particularly from Chinese manufacturers like BYD that now sell more EVs globally. Ultimately, Tesla's ability to execute on its ambitious technology roadmap while managing its brand image will determine whether the current stock pullback represents a buying opportunity or the beginning of a more fundamental revaluation.

Valuation

Our valuation analysis of Tesla reveals significant complexity beyond traditional automotive metrics. At a current price of $248.09, Tesla trades at substantial premiums across all key valuation metrics compared to automotive peers. Our analysis shows Tesla's P/E ratio of 113.02 versus the industry median of 5.20, and a forward P/E of 63.88 compared to the median 5.85, highlighting the market's view of Tesla as more than a conventional automaker.

Source: Bloomberg Finance LP, XTB Research

Our sensitivity tables demonstrate Tesla's valuation dynamics under various scenarios. According to our terminal WACC analysis, Tesla would need to maintain terminal revenue growth between 5.0-5.6% with a WACC between 7.4-8.6% to justify its current price. Similarly, our operating margin sensitivity indicates that achieving 14-15% operating margins with 19-21% revenue growth would support current valuation levels.

Source: Bloomberg Finance LP, XTB Research

Source: Bloomberg Finance LP, XTB Research

We believe traditional valuation methodologies present significant limitations when applied to Tesla for several reasons:

1. Data and AI Capabilities: Our DCF models primarily capture vehicle sales growth without adequately valuing Tesla's expanding data ecosystem. The over 2 million vehicles on the road continuously collect driving data that enhances Tesla's neural networks, creating value not reflected in traditional metrics.

2. Non-Automotive Revenue Potential: Our standard models struggle to quantify the potential value of Tesla's robotaxi business, humanoid robots (Optimus), and advanced energy products. The robotaxi opportunity alone represents a potential addressable market of approximately $190 billion globally.

3. Software and Services Growth: Unlike traditional automakers, Tesla's software-defined architecture enables recurring revenue streams through FSD subscriptions and over-the-air updates that enhance customer lifetime value.

Our comparative valuation using mean metrics across the peer group would suggest a price target range of $27.93 (P/E-based) to $59.73 (P/BV-based), while using our cap-weighted methodology yields a higher range of $59.62 to $133.97. The substantial gap between these implied valuations and Tesla's current price reflects the market's expectations for Tesla's transformation beyond automotive manufacturing.

We conclude that while Tesla appears significantly overvalued based on traditional automotive metrics, standard valuation approaches may fundamentally underestimate Tesla's long-term potential if its AI, autonomous driving, and energy initiatives materialize as planned. Investors should consider both the unprecedented premium assigned to Tesla and the potential for entirely new business models that could justify these multiples over time.

Recommendations: 

Tesla has 60 recommendations, with 33 "buy" and highest price of $515, 14 “hold” and 13 “sell” with the lowest price of $24.86. The 12-month average stock price forecast is $351.16, implying a 41.4% upside potential from the current price.

Technical analysis (Daily interval): 

The stock is currently trading at the 78.6% Fibonacci retracement level. Bulls will likely attempt to retest the 200-day SMA at $281.88, which could open the door for further upside. On the other hand, bears are eyeing a potential retest of last year's lows at $182. The RSI is on track to form a bullish divergence with a higher high, while the MACD is tightening, signaling a possible bullish crossover.