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At the time of writing this article, the tesla (NASDAQ:TSLA) stock price is up 42% in a month. Of course, the catalyst for this surge is the re-election of Republican candidate Donald Trump; its biggest donor was Tesla boss Elon Musk.
It's not just Musk's Tesla shares that have risen. Reports suggest his company SpaceX is looking to raise more capital, valuing the company at around $250 billion, up from $180 billion in the summer. Meanwhile, xAI recently raised $5 billion, and the ai company is valued at $45 billion, double its valuation a few months ago.
But what about Tesla? What do the forecasts say about the company? Will it live up to its share price?
What analysts say
The average price target for Tesla shares is $207. That's 33% below the current share price, inferring that the stock is massively overvalued. In fact, I don't think there are any other large-cap stocks trading this far above their average price target.
These are the objectives of large institutions like HSBC and other brokerages. But it is true that other analysts remain very optimistic about the company. Cathie Wood's Ark Invest, for example, has suggested that Tesla shares could reach $3,100 in 2029.
Tesla earnings forecast
Tesla certainly divides opinion among analysts, with earnings and valuation forecasts painting a mixed picture.
Analysts project earnings per share (EPS) to decline in 2024 before recovering with stronger growth in subsequent years. The average EPS estimate for 2024 is $2.49, representing a year-over-year decline of 20.33%.
However, EPS is expected to grow by 31.27% in 2025 to $3.26, with continued growth expected through 2030.
Tesla's future price-earnings (PE) ratios remain high compared to traditional automakers, reflecting investors' expectations for future growth. The forward P/E for 2024 is 125.19 times and will gradually decrease to 43.26 times by 2029.
However, it's clear that these numbers are incredibly high for an electric vehicle (EV) manufacturer. Instead, investors are banking on Tesla winning in autonomous driving and robotics. The problem is that Tesla appears to be falling behind its robotaxi peers.
| EPS | price/earnings | |
| 2024 | 2.49 | 125 |
| 2025 | 3.26 | 95 |
| 2026 | 4.06 | 76 |
| 2027 | 4.63 | 67 |
Can we justify the valuation?
I haven't explained exactly why Tesla stock rose when Trump won. So why is Tesla trading so much higher? Well, it's because Musk is expected to have an efficiency role in the new administration and this may allow him to lobby for nationwide autonomous driving regulations that will benefit his robotaxi operations.
However, we saw Tesla's stock price drop on Thursday, November 14 after Trump said he would eliminate subsidies for electric vehicles. There are clearly pros and cons for Tesla under the Trump administration.
For me, the bottom line is that Tesla does not currently justify its valuation. While the company's innovative potential is impressive, bringing new technologies to market at scale is fraught with challenges. The high expectations built into Tesla's stock price leave little room for setbacks or slower-than-expected growth.
