The landscape for Tesla stock has shifted dramatically in 2025. It wasn’t long ago that I evaluated whether investing in Tesla was wise, considering it had already shed a fifth of its value this year. At the time, the inflated valuation didn’t align well with the company’s core fundamentals, making buying the dip seem less appealing. So, what about now? As I write this, Tesla’s shares have plummeted about 39% year-to-date. With an even steeper drop, could this be the moment to invest in this growth story?
To determine if Tesla stock is worth buying after such a significant fall, we need to delve into its recent performance, identify key drivers, and evaluate its present valuation.
### Deteriorating Fundamentals
Measuring up Tesla’s recent performance to its stock valuation reveals disappointing figures. The high-interest-rate atmosphere throughout 2024 hit Tesla hard, dampening demand, unit sales, and pricing for its vehicles. Consequently, Tesla’s automotive revenue dipped by 6% year-over-year in 2024, while total revenue barely edged up by 1%. The financial picture doesn’t improve much considering the net income plummeted by 53% and free cash flow reduced by 18%.
Yet, not all of Tesla’s segments are faltering. The energy generation and storage division, fueled by booming sales of home and utility energy storage solutions, saw revenues soar by 67% annually, and Q4 alone boasted a 113% surge. However, given that this segment contributes only about 10% to Tesla’s total revenue, setbacks in the automotive arm heavily affect the company’s overall performance.
### Key Catalysts
Tesla’s potential shouldn’t be judged solely on recent figures. Reaching its historic high growth rates again—which used to hover around 50% per year—is still within the realm of possibility. A more favorable interest rate environment or the introduction of new products and services could reignite growth.
While interest rates are out of Tesla’s hands, they heavily influence car sales since many buyers finance their purchases. Lower rates could potentially boost sales. However, since this is a tricky external factor to predict, investors should focus on Tesla’s main product development drivers: autonomous driving technology, a lower-cost electric vehicle, and the expansion in its energy storage business.
By the summer, Tesla aims to roll out a fleet of autonomous vehicles for a ride-sharing pilot in Austin, Texas. For those unfamiliar with Tesla’s vehicles using the latest full self-driving software, this may sound far-fetched. Yet, the technology is closer than many investors think.
The software allows Tesla vehicles to handle complex scenarios like traffic circles, traffic lights, stop signs, highway merging, and pedestrian crossings. With this innovation installed in every car produced, Tesla can swiftly transition into a leading player in the autonomous ride-sharing space.
The upcoming launch of a more affordable Tesla model also presents a significant growth opportunity. Statements from Tesla’s fourth-quarter earnings call indicate multiple new vehicles in the works. Tesla’s CFO, Vaibhav Taneja, confirmed, “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.”
Moreover, Tesla’s energy storage products could serve as a substantial growth engine next year. The company plans to ramp up production significantly thanks to a new factory completed last year.
### Can Tesla Justify Its Premium Valuation?
Considering the challenging environment Tesla faces alongside its promising prospects, the stock still seems overpriced to me. Trading at roughly $250, Tesla’s price-to-earnings ratio stands at 122. I might consider initiating a small position if the stock drops to around $200, albeit acknowledging the inherent high risk.
There’s always the possibility of Tesla turning out to be a stellar investment even at current prices. However, given the unpredictable dynamics at play, I’d rather watch from the sidelines for now.
