Tesla TSLA stock has seen an electrifying rebound in 2024, pushing its market value back over the coveted $1 trillion mark. After having plummeted more than 40% from the beginning of the year till Apr. 22 (when it hit its 52-week low of $138.08), the stock has roared back to life. It has witnessed a strong rally lately thanks to the company’s solid third-quarter results and Donald Trump’s presidential victory.
The stock is up 41% year to date, having closed at $350 yesterday. The electric vehicle (EV) pioneer has not only recaptured its former glory but also sparked renewed investor enthusiasm. Tesla’s market cap is once again in the elite group of companies in the S&P 500, alongside tech giants like NVIDIA NVDA, Apple AAPL, Microsoft MSFT, Amazon, Alphabet, Meta Platforms. But with TSLAstock now sitting at such a high valuation, investors may be wondering if there’s still time to invest in TSLA stock. Let’s break it down.
YTD Price Performance
Image Source: Zacks Investment Research
Bullish Catalysts: What’s Driving the Surge in TSLA Stock?
The Trump Factor:The prospect of Donald Trump returning to the White House has injected new optimism into Tesla’s stock. While many analysts argue that Trump’s presidency could pose an “overall negative” for the EV industry due to potential cuts in rebates and tax incentives for electric vehicles, Tesla is likely to benefit as it has the scale and infrastructure to thrive even without subsidies. Moreover, Trump’s administration may expedite regulatory approvals, especially for Tesla’s ambitious self-driving initiatives. Musk’s strong support for Trump, coupled with a push for a national standard for autonomous vehicles, could accelerate the rollout of Tesla’s much-anticipated robotaxi fleet.
Cybertruck Sales: In the third quarter of 2024, the Cybertruck became the third best-selling EV in the United States, trailing only the Tesla Model Y and Model 3. As Tesla’s production capacity ramps up and efficiency improves, deliveries of the Cybertruck are expected to soar, providing a fresh revenue stream for the company. Additionally, the vehicle managed to achieve a positive gross margin in the third quarter.
Lower Interest Rates: Last week, the Fed slashed interest rates for the second time this year. It cut key interest rates by 25 bps, bringing down the benchmark rate to 4.5%-4.75%, following the 50-bps cut in September 2024. Fed’s dovish policy makes financing an EV more affordable for consumers, potentially driving higher sales for Tesla in the coming quarters.
Lucrative Energy Generation & Storage Business: Tesla’s energy generation and storage business has grown rapidly, with revenues expanding at a triple-digit compound annual growth rate (CAGR) over the past three years. The segment’s high margins are a crucial catalyst for the company. As the world moves toward sustainable energy, Tesla’s solar and energy storage solutions could become significant drivers of the company’s growth.
AI and Autonomous Driving: Tesla is making progress in the artificial intelligence (AI) and autonomous driving domains, which are becoming key differentiators for the company. Tesla has been increasing its AI compute training by 75% and making strides in its Full Self-Driving (FSD) capabilities. With more than 2 billion miles driven on supervised FSD, Tesla is accumulating valuable data that enhances the safety and performance of its autonomous vehicles. If Tesla can roll out an unsupervised FSD system as promised and launch robotaxis next year, this could be a game-changer for the company’s long-term prospects.
Valuation: Is Tesla Too Expensive?
A major concern for investors eyeing Tesla at its current price is its high price-to-sales (P/S) ratio of 9.9, significantly above the automotive industry’s average of 1.7. This indicates that Tesla’s valuation is elevated, but the premium can be attributed to its diverse presence in fast-growing sectors like AI, autonomous vehicles, clean energy and EV charging. Unlike traditional automakers, Tesla blends both automotive and tech industry traits, which typically commands a higher valuation.
Image Source: Zacks Investment Research
Additionally, Tesla’s growth outlook remains strong. The Zacks Consensus Estimate for 2025 earnings indicates growth of nearly 30%, signaling a return to its hyper-growth phase. If Tesla manages to maintain its leadership in the EV market, continue advancing in autonomous driving and AI, and capitalize on its energy business, its current valuation may very well be warranted.
It’s Still Not Late to Invest in TSLA
Given Tesla’s impressive recent performance, its dominant market position and the multitude of bullish catalysts surrounding the company, it’s easy to see why investors are excited. The Trump bump, Cybertruck sales, lower interest rates, advancements in autonomous driving and growing energy storage business are all contributing to the company’s favorable outlook. While its P/S ratio is significantly higher than the industry average, the company’s continued innovation in multiple sectors may justify the premium.
Tesla’s business operations are clearly regaining investor confidence. Given the trend of upward earnings estimate revisions aligning with Elon Musk’s optimistic outlook for FY25 (vehicle deliveries to surge 20-30% next year) and, of course, the Trump effect, it won’t be surprising if TSLA stock continues its upward momentum.
Image Source: Zacks Investment Research
TSLA currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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