At the beginning of the year, I predicted that Tesla (NASDAQ:TLSA) stock would drop by at least 40% in 2025. I said that the electric vehicle (EV) firm faced “weak consumer spending, the potential elimination of EV subsidies, and rising competition from cheaper hybrid vehicles“.
I also suspected the close Trump-Musk relationship might not be the blessing that many assumed it would be for Tesla.
All these things have played out, with falling sales, the scrapping of EV tax credits, and relentless competition, particularly from China’s BYD. Meanwhile, relations between CEO Elon Musk and President Trump have soured, to put it mildly.
Yet, after rising 23% in a month, the share price is now actually up slightly this year. I admitted that my prediction was inviting egg on my face — and sure enough, I’ve ended up with a full omelette!
Massive purchase
The stock got a boost Monday (15 September) when it was announced that Musk had bought 2.57m Tesla shares for roughly $1bn. He also made multiple purchases on 12 September at prices ranging from $372 and $396. As I type, the stock’s at $410.
This was the first time Musk had scooped up shares on the open market since 2020. As Wedbush analyst Dan Ives noted, this insider purchase “is a huge sign of confidence for Tesla bulls and shows Musk is doubling down on his Tesla AI bet“.
Bright shining citadel on a hill
Earlier this month, Tesla’s board proposed a potential $1trn pay package for Musk, assuming he hits a number of ambitious targets. These include having 1m robots delivered, 1m robotaxis in operation, and reaching a market value of $8.6trn in 10 years.
This highlights how the company wants investors’ eyes fixed firmly on a future filled with robotaxis and Optimus humanoids. On the Q1 earnings call back in April, Musk said: “I’d encourage people to look beyond the bumps and potholes of the road immediately ahead of us and lift your gaze to the bright shining citadel on a hill – some Reagan-esque imagery – and that’s where we’re headed.”
It’s these bumps and potholes that worry me though. In Q2, revenue fell 12% year on year to $22.5bn, due in large part to a decline in vehicle deliveries. Profits are under huge pressure, something lower regulatory credit revenue in future certainly won’t help.
Again, none of this might matter to an investor if they believe in the Regan-esque imagery on the hill. Musk predicts that Optimus robots could account for 80% of Tesla’s value in future.
Still, I can’t help worrying about the competition here. Chinese manufacturers already dominate globally in drones and EV batteries (and increasingly EVs). Why not cheap humanoids too? Beijing has made robotics a key strategic industry and is heavily funding R&D.
Sitting in the gallery
Tesla trades at 15 times sales and 158 times forward earnings — multiples that seem absurd to me. But I thought that months ago, and here we are, omelette and all.
This demonstrates perfectly once again why I don’t ‘short’ (bet money against) Tesla stock. It defies logic. As John Maynard Keynes said: “The market can stay irrational longer than you can stay solvent.”
For now, I’ll just watch Tesla from the gallery, curious to see what Muskian drama plays out next.
