Over the years, electric vehicle (EV) behemoth Tesla TSLA has evolved into a dynamic technology innovator. It has managed to garner a gold-standard reputation over the years and is now a far bigger entity than it was at the time of its IPO in 2010. This “Mag 7” stock’s market capitalization doubled in the past six months and is now valued at more than $1 trillion. Its market cap is more than the combined value of legacy automakers, including Toyota TM, General Motors GM, Ford F and others.
Shares of Tesla got a major boost from its third-quarter 2024 results (released on Oct. 23), having soared nearly 67% since then. And, of course, Donald Trump's victory in the 2024 U.S. presidential election has added fuel to the momentum. In the past six months, TSLA stock has handily outperformed the industry, sector and S&P 500, as well as auto giants like TM, GM and F.
6-Month Price Performance Comparison
Image Source: Zacks Investment Research
Given Tesla's impressive rally, you might wonder if the opportunity has passed. However, we believe Tesla has a lot going in its favor, and this rally is far from over. In fact, the stock holds substantial upside potential as we head into 2025. TSLA currently sports a Zacks Rank #1 (Strong Buy) and has a Momentum Score of B. The stock is trading above its 50 and 200-day moving averages, suggesting a bullish trend.
Image Source: Zacks Investment Research
Why Tesla Still Packs Plenty of Power
The Trump Effect: For Tesla, presidential connections are proving beneficial. Trump appointed Musk to co-lead the new Department of Government Efficiency (DOGE), focusing on deregulation and cost-cutting. Trump’s victory is likely to turbocharge Tesla in 2025. First, Trump’s push to repeal the $7,500 EV tax credit will work in Tesla’s favor. Unlike its rivals, Tesla has largely outgrown the need for such incentives, thanks to its massive scale, high brand loyalty and a head start in production. Second, Trump’s trade stance, particularly his tough approach toward China, could also boost Tesla’s position in the U.S. market. With a dominant domestic production capacity, Tesla could capture a larger market share as Chinese EVs face tariff threats. And finally, Trump’s plans for a streamlined federal framework for autonomous vehicles (AVs) would remove significant hurdles that have hampered Tesla’s rollout of Full Self-Driving (FSD) technology.
Thriving Energy Generation & Storage Business: Tesla’s revenues from this business have exploded, rising at a triple-digit compound annual growth rate (CAGR) over the past three years. This segment stands out as Tesla's most lucrative, boasting the highest margins. With ongoing efforts to ramp up production at the Megapack factory to meet escalating demand, this unit should be a significant catalyst in the long term.
NACS Charging Network: Tesla's charging division is set to boost profitability with more than 60,000 global supercharger connectors currently. Major automakers are adopting Tesla's North American Charging Standard, making the charging business a significant potential revenue stream.
Strong Balance Sheet & Cash Flow: Tesla's high liquidity and low leverage offer financial flexibility for growth. The company exited the third quarter of 2024 with more than $33 billion in cash, equivalents and investments. With a long-term debt-to-capitalization ratio of just about 7%, well below the industry average of 40%, and a record operating cash flow of $6.3 billion last quarter, Tesla is well-positioned for future opportunities.
Cybertruck Sales: Cybertruck became the third best-selling EV in the United States in the September quarter, behind Model Y and Model 3. Moreover, the vehicle achieved positive gross margins for the first time, marking a significant milestone for Tesla's product lineup expansion.
Strong Delivery Expectations:With Musk forecasting overall vehicle deliveries to grow between 20% and 30% next year, Tesla’s future looks promising, especially as gross margins start to improve. Gross margins from automotive sales (excluding leasing and regulatory credits) also rose 40 basis points to 18.6% due to lower vehicle costs, including raw materials, freight and duties.
Robotaxi Promise: Tesla's ambitious robotaxi plans could benefit from Trump's initiative to simplify AV regulations, providing a clearer path for deploying its autonomous fleet. Currently, Tesla's FSD system operates in a supervised capacity, but the company aims to have unsupervised operations in states like Texas and California by next year. Musk has promised ride-hailing robotaxis in these states, pending regulatory approval, which could be smoother under Trump's presidency. The $30,000 Cybercab, a two-seater without steering wheels or pedals, is expected to be launched in 2026, marking Tesla's bold entry into the AV market.
TSLA’s Growth Estimates
The Zacks Consensus Estimate for Tesla’s 2025 sales and EPS implies a year-over-year uptick of 16.4% and 29.5%, respectively. Its EPS estimates have witnessed positive revisions in the past 30 days.
Image Source: Zacks Investment Research
Last Word
Tesla, which is touted as the clean energy revolutionary automaker, is much more than just a car manufacturer. Given the trend of upward earnings estimate revisions aligning with Musk's optimistic outlook for 2025 and the Trump bump, TSLA stock is set to soar higher next year. 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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