Is Tesla stock a buy in 2025?

Tesla (TSLA -3.25%) had a big year in 2024 and shareholders enjoyed a 70% gain (as of December 30).

A number of positive factors, such as solid sales volume and the election of Donald Trump as president, drove the stock to new records. But as the year winds down, should investors buy Tesla stock now for 2025? Let’s explore.

Image source: Getty Images.

To become the largest car manufacturer

The rise of the electric vehicle (EV) industry has been a significant trend in the past decade as countries globally work to address environmental issues. This major transition gave early movers like Tesla a major advantage in gaining market share from the incumbents.

Unsurprisingly, Tesla has become the largest manufacturer of electric vehicles in the US, accounting for nearly 50% of electric vehicle sales by 2024. Although Tesla’s electric vehicle market share has declined from 75% in early 2022 as incumbents started to catch up, it still holds the dominant market share.

Despite its remarkable achievements over the past few years, Tesla has bigger ambitions in the long term: to become the largest car manufacturer. A series of strategies, which include reducing sales prices, cutting costs to become a cost leader and launching a low-cost car model, show the company’s determination to achieve its long-term mission.

In fact, Tesla CEO Elon Musk has openly stated his goal of selling 20 million cars a year by 2030, although many Tesla fans believe the company could turn more towards robotics than just selling traditional electric cars. Regardless, Tesla’s ambition to dominate the automotive industry is clear and resolute.

The good news is that there are early indicators that Tesla’s long-term mission is on track. For example, in the third quarter of 2024, Tesla achieved its lowest cost of goods per unit. vehicle of $35,100, increased vehicle deliveries both sequentially and year-over-year, reduced operating expenses by 6% despite selling more cars, and improved its gross margin by 1.95 percentage points year-over-year.

While a single quarter of financial results is not indicative of future results, it does suggest that Tesla has made good progress toward its long-term mission.

More than just a car manufacturer

Tesla may have started as an electric car maker, but over the years it has branched out from its roots into other sectors such as renewable energy, autonomous driving and robotic axes.

Take renewable energy for example. Tesla aims to provide a complete solution for commercial and residential customers to move towards energy independence, covering major components such as solar panels and energy storage. As the world becomes more aware of sustainability and environmental friendliness, the renewable energy business is at the center of a megatrend that could last for decades.

Another area that could be a big game-changer for Tesla is its investment in artificial intelligence (AI), which in turn could help it accelerate products in areas such as autonomous vehicles, robotic axes and humanoid robots, to name a few get. Each product can yield tens of billions of dollars over time, if not more. For example, Elon Musk claims that Tesla’s humanoid robot Optimus could one day lift the company’s market value to $25 trillion as the world embraces these robots en masse. (Tesla’s market cap is now about $1.4 trillion.)

While it is unlikely that all of these new ventures will be as successful as the electric car business, just one or two successes in these areas could create enormous value for Tesla shareholders.

But here’s the potential deal-breaker

At this point, it’s not hard to see that I’m optimistic about Tesla’s business prospects for the next few years. However, I can’t say the same about Tesla’s stock.

Optimistic investors have bid up Tesla’s price at exaggerated valuations. For example, Tesla has a price-to-sales ratio of 16 and a forward price-to-earnings (P/E) ratio of 125. So while Tesla’s prospects are undeniably good, conservative investors will still question whether they pay such a high price tag makes sense – especially for high-risk ventures that have yet to materialize.

Also, Tesla’s stock has had a significant run since Trump won the election, as investors expect favorable treatment of Tesla due to Musk’s close association with the president-elect. However, such speculation is risky as it is too complex to predict how such conditions will affect Tesla.

What it means for investors

Tesla has a bright future as it continues to scale its electric business while developing its newer ventures in robot axes, robotics and more. As such, existing investors, especially those who bought the stock at much lower price points, may consider holding onto the stock into 2025.

But for the rest, it’s probably too risky to buy Tesla’s stock at today’s valuation, even if there is strong momentum for the share price to move further in 2025.

Better to be safe than sorry.