Tesla (NASDAQ:TSLA) delivered rather dire Q4 results, making it hard to spin the situation positively. That didn’t deter CEO Elon Musk from presenting an optimistic narrative on the conference call, as he highlighted the various opportunities ahead for the EV leader.
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Despite the decline in margins, Tesla remained optimistic in its outlook, with the company expecting the vehicle business to return to growth again in 2025, although no specific guide was provided. The anticipated growth will come from ongoing cost reductions (with cost per car falling below US$35,000 in Q4) and the launch of the new Model Y, with production and deliveries set to begin in 1Q25. Beyond its core vehicle business, Tesla is doubling down on automation and Full Self-Driving (FSD). The company aims to roll out unsupervised FSD and a driverless ride-hailing service – the Cybercab – across multiple U.S. states by year’s end. Meanwhile, the timeline for its much-anticipated low-cost EV remains unchanged, with production slated for 1H25.
Phillips Securities analyst Glenn Thum sees this budget-friendly EV as a stepping stone, helping Tesla fine-tune its manufacturing lines for the fully autonomous Cybercab. Tesla is targeting volume production of 2 million units annually by FY26, but Thum cautions that margin improvements may not materialize until FY27.
Tesla might have struck a confident tone but that is not a view shared by Thum, who points out the 4Q24 results were “largely negative,” with auto revenue (which made up 77% of 4Q24 sales), gross margins, and vehicle ASPs all falling. Moreover, despite recording all-time high sales in China in 2024, Tesla continued to cede market share to BYD. Its market share slipped to 6% in FY24, down from 8% in FY23, while BYD maintained a commanding 34% share.
And then there’s the political wildcard. Musk’s close ties to Trump have generally been viewed as a net positive by investors following Trump’s November victory. However, Thum believes a Trump-led White House could spell trouble for Tesla. He outlines three key risks: “1) the removal of the US$7,500 EV tax credit, which would lower demand, 2) the lowering of emission standards, which would hamper TSLA’s ability to sell regulatory credits, and 3) China tariffs, which would impact TSLA’s business and profitability.”
Moreover, any meaningful revenue from Tesla’s ambitious ventures – FSD, Robotaxi, and Optimus – could still be 3 to 5 years away. And with Tesla trading at a sky-high 160x forward PE for FY25, Thum believes the market may have already priced in those expectations far ahead of time.
As a result, Thum has downgraded Tesla shares to Sell (from Reduce), even as he lifts his price target from $230 to $265. However, that still implies a steep 29% downside from current levels. (To watch Thum’s track record, click here)
9 other analysts also favor a bearish slant here and with an additional 12 Buys and Holds, each, the stock claims a Hold (i.e., Neutral) consensus rating. The forecast calls for a one-year slide of ~7%, considering the average target stands at $336.48. (See TSLA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
