Should you invest in Tesla?

A photograph of Tesla CEO Elon Musk, pictured at the Tesla "Gigafactory" in Gruenheide near Berlin.

(Image credit: Patrick Pleul / POOL / AFP (via Getty Images))

last updated 30 January 2025

Investors have interpreted Tesla’s fourth-quarter earnings miss as little more than a bump in the road, with the share price rising 4% in after-hours trading on 29 January. Tesla is one of the most popular stocks on retail investment platforms, and one of four Magnificent Seven companies reporting earnings this week.

The company’s revenues rose by 2% year-on-year, hitting $25.7 billion. Analysts were forecasting $27.2 billion, based on Factset consensus estimates. Meanwhile, profits came in at $2.3 billion, or $0.66 per share, disappointing estimates of $0.77. This was 71% lower than the same period a year ago, when the company received a one-off tax benefit.

After falling initially, Tesla’s share price quickly bounced. By the end of after-hours trading, it was 4% higher.

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“One explanation is that Musk raised hopes on the analyst conference call, saying the company’s work was setting the scene for ‘an epic 2026 and a ridiculous 2027 and 2028’,” said Dan Coatsworth, analyst at investment platform AJ Bell. “Investors have a habit of buying into his every word, but whether that remains the case is unknown.”

Donald Trump’s return as president has also supercharged Tesla’s share price in recent months. The stock is up more than 56% since the start of November. This is a staggering turnaround for a company that spent much of 2024 in the red.

The momentum has largely been driven by chief executive Elon Musk’s close ties to Trump. Musk has been given a key advisory role at the heart of Washington and investors believe he could use this position to shape regulation – including rules around autonomous vehicles.

This doesn’t mean investors should buy into the stock, though, particularly at the current valuation. At $389.10 (as of market close on 29 January), shares are trading around 85% higher than Morningstar’s fair value estimate of $210.

Investors have been buying into the hype, but it is possible the share price will slump once sentiment dies down and Trump’s win becomes old news – particularly if the company’s financials fail to improve. As Coatsworth points out, Tesla has now missed earnings for five out of the past six quarters.

Analysts had been expecting a weak quarter for the company based on the sales and delivery numbers published on 2 January. These showed that deliveries fell on an annual basis in 2024 for the first time in over a decade.

Despite this, the share price managed to rise higher, driven by optimism around future developments.

During the earnings call on 29 January, Musk confirmed that Tesla is “still on track” to deliver a new, more affordable model in the first half of 2025. This could be important in shaping the company’s trajectory going forward, as competition heats up from lower-priced competitors.

BYD is China’s leading e-vehicle manufacturer and Tesla’s greatest competitor – and it is snapping at Tesla’s heels when it comes to sales volumes. BYD delivered 1.76 million battery electric vehicles in 2024, only slightly behind Tesla’s 1.79 million.

During the call, Musk also reiterated the company’s progress with autonomous vehicles. “I expect us to be operating unsupervised activity with our internal fleet in several cities by the end of the year,” he said.

As exciting as these developments sound, Tesla still faces headwinds including a challenging macroeconomic backdrop.

Consumers are stretched after years of rapid inflation and interest rates remain high. Many households are not in a position to splash the cash on luxury items – and electric vehicles (particularly Teslas) come at a premium.

Morningstar analyst Seth Goldstein adds: “The automotive market is highly cyclical and subject to sharp demand declines based on economic conditions. As the EV market leader, Tesla is vulnerable to growing competition from traditional automakers and new entrants.

“As new lower-priced EVs enter the market, the firm may be forced to continue to cut prices, reducing its industry-leading profits. With more EV choices, consumers may view Tesla less favourably.”

With this in mind, investors should exercise a degree of caution. At current levels, it looks as though Tesla’s share price has become dangerously detached from the fundamentals.

Katie has a background in investment writing and is interested in everything to do with personal finance, politics, and investing. She enjoys translating complex topics into easy-to-understand stories to help people make the most of their money.

Katie believes investing shouldn’t be complicated, and that demystifying it can help normal people improve their lives.

Before joining the MoneyWeek team, Katie worked as an investment writer at Invesco, a global asset management firm. She joined the company as a graduate in 2019. While there, she wrote about the global economy, bond markets, alternative investments and UK equities.

Katie loves writing and studied English at the University of Cambridge. Outside of work, she enjoys going to the theatre, reading novels, travelling and trying new restaurants with friends.