Tesla (TSLA) has been right in the middle of a perfect storm so far this year, while TSLA bears have made their case, showing that the stock was indeed overvalued, with a 35% drop in the first three months of 2025 alone. Moreover, Donald Trump’s impending 25% tariff on all imported cars and car parts on April 3rd, dubbed “Liberation Day,” aims to give American auto jobs and industry a competitive advantage–and could be a massive boon for TSLA. However, retaliatory tariffs by other nations will likely lift TSLA car prices outside of the U.S., thereby expunging any Trump-tariff-powered financial gains.
Although I’m a long-term bull on Tesla and believe it’s the best-positioned company to capitalize on AI-driven growth through FSD and its robotaxi project, it’s unclear how long these developments will take. Some analysts forecast a 5-10-year waiting period, at the very minimum, before TSLA stock can fulfill its gargantuan market potential. With EV sales becoming sluggish, TSLA bulls hope the company’s pivot to AI and FSD will maintain the firm’s multiyear uptrend.
In fact, the uncertainty around how long it will take for Tesla’s growth story—especially with FSD and AI—to unfold leads me to take a neutral stance on the stock, even at these discounted levels. For example, using analyst consensus estimates and some bold assumptions for the next five years, there doesn’t seem to be much of a margin of safety in going long on Tesla at current prices.
That said, Tesla is at the forefront of markets with significant disruptive potential, and with one of the most ambitious CEOs on the planet, even pessimistic assumptions could be proven wrong sooner than we expect. I remain long-term bullish but short-term neutral on TSLA stock.
Where Tesla Could Be in 5 Years
Over the past five years, investors who bet on Tesla and held on have done very well. Their annualized return of 47% significantly outpaced the S&P 500 (SPY), which returned 18.9% over the same period. Overall, TSLA stock has produced a 7x return for investors since 2020, purely from its share price gains.
This strong track record reflects Tesla’s ability to grow revenues at a 32% CAGR and increase its net income from $721 million in 2020 to nearly $15 billion by the end of 2023. However, in 2024, profits were cut by half due to massive headwinds, ranging from price reductions and lower vehicle deliveries to rising competition and margin compression.
Tesla’s future looks even brighter, but this time, it’s not just about electric vehicle sales. Tesla is arguably the best-positioned company to participate in mobility disruption driven by AI, with plans to roll out full self-driving (FSD) autonomous vehicles and advancements in robotics.
While it’s incredibly hard to predict the growth of disruptive technologies, CEO Elon Musk has been hyping up the “robotaxi” concept for years. He believes that once this becomes a reality, Tesla will be the most valuable company in the world. According to Main Street Data, Tesla’s revenues are gradually shifting away from EV autos towards energy, storage, and other services.
Balancing the hype with a dose of reality, Wall Street’s consensus for the next five years suggests that Tesla will reach $108.82 billion in revenue by the end of 2025 and $246.11 billion by the end of 2029. This implies a 23% CAGR over that period, with EPS growing at an impressive 37.4% CAGR.
Finding Fair Value for TSLA Stock
Tesla’s valuation is often the main point of debate for both bulls and bears, and it tends to cause significant volatility in the stock, especially when traditional metrics are used to assess its worth.
One interesting exercise is to perform a reverse discounted cash flow (DCF) analysis to assess how realistic Tesla’s share price really is. This can help determine whether the market’s expectations for Tesla’s growth are reflected in its stock price.
For this analysis, let’s establish a baseline for the next five years using the most recent figures: Depreciation and amortization (D&A) account for 47% of capex, which accounts for 12% of revenue. We’ll also assume that net working capital will grow by 1% of total revenues each year.
Given that the consensus expects Tesla’s revenue to grow at a 23% CAGR over the next five years, and assuming a 9% discount rate and a long-term growth rate of 2.5%, Tesla would need to achieve a 36% CAGR in its operating (EBIT) margins to justify an equity value of $813 billion (or its current share price of ~$259). This would require EBIT margins to rise from the current 7.8% to 35% in five years.
These EBIT margin assumptions are quite bold, especially considering Tesla’s core business—electric vehicles—has shown some weaknesses, with operating margins falling from 9.2% in 2023 to 7.8% in 2024.
However, this margin expansion isn’t entirely unrealistic. For example, Cathie Wood from Ark Investment Management, known for her tech-focused investments, believes that Tesla’s Full Self-Driving (FSD) initiative could transform the company into a software-as-a-service (SaaS) business, which typically has very high margins. She also pointed out that Tesla’s robotaxi margins could reach 80%, compared to the much lower gross margins of its EV business, which are usually under 20%.
Further corroborating TSLA’s long-term potential, Ms Wood remains bullish on the stock despite trimming the firm’s position in October 2024 and January this year.
What is the Target Price for TSLA Stock?
There’s a clear divide in Wall Street’s consensus on Tesla. Of the 37 analysts covering Tesla in the last three months, 14 rate the stock as a Buy, 11 as a Hold, and 12 as a Sell. The average price target is $325.00 per share, which, despite the neutral consensus, suggests a 25.4% upside from current prices.
Tesla’s Valuation Lacks a Margin of Safety
Tesla’s journey over the last five years has been solid—at least until recently, when its growth story based on its EV business stalled. The next five years are set to completely reshape the company as it pivots its focus to FSD and robotaxis, potentially turning Tesla into a SaaS company and driving rapid growth in both revenue and profit.
The crucial question isn’t if this happens but when, since we’re still in the embryonic stages of a novel disruptive technology building in scale. For now, even with bold assumptions and the company’s stock dropping nearly 40% in the last three months, I don’t think there’s enough margin of safety to bet on Tesla stock based on 5-year growth forecasts. That said, a longer-term outlook—say, 10 years—might be necessary to truly make sense of Tesla’s share price, though speculating on that is even more complex for a nascent market that hasn’t fully matured yet.