It’s been a brutal year for the growth stock. Is this a buying opportunity?
Things have changed rapidly for Tesla (TSLA 3.86%) stock in 2025. Just a few weeks ago, I assessed whether shares were worth buying after losing a fifth of their value this year. I concluded that buying the dip didn’t make sense; the valuation relative to the company’s underlying fundamentals simply seemed too high. But what about now? As of this writing, shares are down about 39% year to date. Facing an even steeper decline, is now a good time to buy into this growth story?
To help us consider whether Tesla stock is a buy after falling so sharply, let’s examine the company’s recent performance, its key catalysts, and the stock’s current valuation.
Deteriorating fundamentals
Recent business performance for Tesla (TSLA 3.86%) has been downright disappointing when measured against the stock’s current valuation. A high-interest-rate environment weighed on Tesla’s automotive demand during 2024, pressuring both unit sales volume and pricing. The electric carmaker’s automotive revenue fell 6% year over year in 2024, putting total revenue up just 1% for the year. But it gets worse. Net income for the period fell 53% year over year, and free cash flow declined 18%.
Not every Tesla segment, however, is suffering. Driven by sharp growth in sales of its energy storage products for homes and utilities, Tesla’s energy generation and storage business segment saw revenue rise 67% year over year. Growth for the segment was even faster in Q4, coming in at 113%.
Still, at about 10% of revenue, this segment remains small compared to Tesla’s overall business. Weakness in autos, therefore, is weighing heavily on the overall business.
Key catalysts
However, investors can’t define Tesla entirely by its recent results. A potential return to the high growth rates of its past (Tesla used to often grow revenue at a rate of around 50% year over year) shouldn’t be ruled out. The company could potentially turn up the speed on its growth rate with the help of a lower-interest-rate environment or new products and services.
With the interest rate environment out of Tesla’s control, the only thing to say regarding this is that the automotive business has always been sensitive to interest rates since many customers finance their purchases. Lower interest rates, therefore, could help fuel sales. But since this is an external factor that is difficult to predict, investors should focus on the main catalysts the electric carmaker has in its product pipeline: autonomous driving, a lower-cost electric car, and its energy storage business.
By this summer, Tesla plans to launch a fleet of autonomous cars as a ride-sharing service in Austin, Texas. Unless you’ve driven in one of Tesla’s vehicles using the latest version of supervised full self-driving software, this might sound unrealistic. But the technology may be closer than many investors think.
The software can help Tesla vehicles navigate complex situations, including traffic circles, traffic lights, four-way stops, lane changes, merging on and off highways, stopping for pedestrians, and much more. With this technology built into every car Tesla produces, the company can quickly go from a new player in autonomous ride sharing to a major one.
Next, Tesla’s plans to launch a more affordable vehicle could really catalyze its growth. Based on Tesla management’s comments during the company’s fourth-quarter earnings call, there is likely more than one new vehicle in Tesla’s pipeline. “We are still on track to launch a more affordable model in the first half of 2025 and will continue to expand our lineup from there,” said Tesla Chief Financial Officer Vaibhav Taneja during the call.
Finally, Tesla’s aforementioned energy storage products could be a meaningful catalyst in 2025. The company expects to grow energy storage production significantly in 2025 with the help of a new factory it finished late last year.
Can Tesla live up to its premium valuation?
When weighing both the tough environment Tesla is currently operating in and the promising catalysts it has on the horizon, shares still look overpriced, in my opinion. With shares trading at about $250 at the time of this writing, the stock’s current price-to-earnings ratio is 122. I’d personally consider starting a small position in the stock if shares fell to around $200. Though, even at that price, I’d consider the investment high risk.
Of course, there’s always a chance the investment will work out well at today’s price. But given the uncertain nature of this fast-changing business, I prefer to remain on the sidelines.
