What a strange old year it’s been for holders of Tesla (NASDAQ: TSLA) stock. Despite sinking early on, the share price has still managed to climb around 25% (as I type on 29 December) from where is stood at the beginning of 2025.
Will this momentum continue in 2026? There are certainly a few things to suggest this might be the case.
Before touching on those, let’s briefly rewind the clock.
Roller-coaster ride
Tesla actually started 2025 in fine fettle. CEO Elon Musk’s backing of Donald Trump worked out well as the latter returned to the White House. The market clearly believed Trump’s ‘America First’ slogan would provide a boost to the company’s fortunes.
As we know, this positive momentum wasn’t to last. Vehicle deliveries began to fall and the market grew sceptical over the growth strategy. On top of this, investors became increasingly uneasy about Musk’s involvement in US politics. Trump’s tariff tantrum at the beginning of April then sent share prices sharply lower across the board.
Musk eventually refocused, no doubt lured by a $1trn pay deal that was officially approved by shareholders in November. The stock recovered as well, supported by the AI story and chatter surrounding the firm’s progress on full self-driving and robotaxis.
Where now for Tesla stock?
Based on the performance in the second half of 2025, I wouldn’t want to bet against the stock continuing to rise next year.
A lot will probably hinge on what progress Tesla is able to make with those aforementioned growth drivers rather than traditional car sales. The successful deployment of robotaxis in new areas — or just getting the permits to do so — would likely go down well.
More positive news from it’s fast-expanding energy division would help too. The potential long-term demand for large-scale battery storage solutions for hyperscale AI data centres is exciting and further diversifies the business.
But there remain a few things that still trouble me.
Reasons to be wary
For one, the company’s valuation remains (insanely) high relative to actual earnings. A price-to-earnings (P/E) ratio in the hundreds, is also far above other members of the Magnificent Seven tech titans.
Now, backers would argue that conventional metrics are meaningless and that Tesla stock still looked ‘expensive’ when it fell to its lowest ebb in 2025 (around $220 a pop). And then they’d point to the huge wads of cash they’ve made since to back this up!
Even so, it seems clear that expectations surrounding Tesla remain high and there’s little room for error. On the EV front, the competition is only likely to get more intense, impacting margins in the process. If the company fails to deliver, faces unexpected regulatory hurdles, or the general AI story begins to crack, the shares could conceivably tumble. And there won’t be any dividend stream to make up for it.
And regardless of how well the business performs, it may only take an ill-advised move or comment from Musk on social media to make investors jittery again.
One thing we can be fairly sure of: Tesla’s 2026 won’t be boring.
Personally, I’m still content to get my exposure via a few diversified funds rather than holding the stock directly. But good luck to those Fools who have the stomach to do so.
