The Tesla (NASDAQ:TSLA) share price has been on quite a volatile journey this year, surging and tumbling by double-digits repeatedly. Seeing severe price fluctuations is nothing new to this leading electric vehicle (EV) enterprise, especially since the stock’s long traded at lofty valuations.
Even though the shares still trade close to 40% below their 2021 peak, the price still puts Tesla at a price-to-earnings ratio of roughly 67. In other words, investors expect some impressive growth out of the EV business in the future. So the question now is, can Tesla deliver for shareholders?
Let’s see what the experts have to say.
Polarised opinions
Tesla’s always been a bit of a controversial stock thanks to its wild-card CEO, Elon Musk. And this hasn’t changed over the years as he continues to expand into new ventures, such as the acquisition of Twitter, as well as his recent foray into the world of politics.
However, the shareholders who are big supporters of Musk’s vision for the future of Tesla are the reason why shares have been propelled to exceptional heights. In fact, at one point, the stock’s market-cap surpassed the $1trn threshold, despite not having the fundamentals to back this valuation.
| Opinion | Analysts |
| Buy | 8 |
| Outperform | 14 |
| Hold | 20 |
| Sell | 8 |
| Strong Sell | 4 |
Right now, opinions among institutional analysts about Tesla shares remain divided. Yet a recurring theme is concern about the valuation rather than the underlying business. And that’s made fairly apparent when looking at the 12-month share price forecast.
| Opinion | 12-Month Share Price Forecast | Potential Gain/Loss |
| Optimistic | $315 | +24.8% |
| Average | $235 | -6.9% |
| Pessimistic | $24.86 | -90.2% |
What to make of this?
Analyst forecasts have always been a blunt rather than precise instrument. They rely on assumptions that rarely come to pass, resulting in potentially enormous inaccuracies. Yet, share price predictions can give some valuable insight into the expectations of the market. And looking at share price projections, it seems that investors are expecting Tesla to beat current analyst predictions.
To be fair, there are some paths for this to be achieved. The Trump presidential victory could be an enormous tailwind for Tesla’s business. Trump’s already proposed introducing 200% tariffs on Chinese and Mexican EV imports. And such a move could wipe out a huge chunk of competition.
Furthermore, the growing reliance on Tesla’s Supercharger network from other manufacturers like Ford and General Motors grants the business a recurring revenue stream from both Tesla and non-Tesla EVs. And in the long run, this first-mover decision could reap tremendous rewards that can help justify today’s valuation.
But not everyone’s convinced. Until recently, Tesla has effectively existed in a competitive vacuum when it comes to EVs. And now that other vehicle manufacturers are starting to expand into this space with vastly deeper pockets, there’s the risk that Tesla might lose its grip on the EV marketplace.
In fact, this has already been happening in China. And while its EV charging network could mitigate this impact in the long run, today, vehicle sales are still the dominant source of revenue for this business.
Needless to say, there’s a lot of risk attached to this business. And personally, it’s too high for my tastes, so I’m not rushing to buy any Tesla shares right now at the current price.
