Tesla (TSLA) is having a rough start to 2025, with its stock down 33% year-to-date. For a stock that’s been a darling of tech and growth investors, that’s a serious wake-up call. But while Tesla bulls continue to point to self-driving cars, AI breakthroughs, and robotaxis as the next wave of explosive growth, it’s time for a reality check: the dream might be exciting, but it’s still just that – a dream.
Don’t Miss Our End of Quarter Offers:
Before we continue; if you wish to read more about TSLA ongoing challenges, I recommend reading what our analyst at Tipranks, Bernard Zambonin, wrote about the company right here.
Five to Ten Years Before the Next Growth Step
Let’s start with the basics. Tesla’s core business is still electric vehicles. And in 2024, things didn’t go so smoothly. The company’s profits were cut in half thanks to price cuts, slowing deliveries, and increasing competition. Operating margins dropped from 9.2% in 2023 to 7.8% – those aren’t the numbers that justify sky-high valuations.
Some argue that the company’s pivot to AI and autonomous driving will change the game. Tesla’s Full Self-Driving (FSD) software and the long-hyped “robotaxi” plan are supposed to turn the company into a high-margin software powerhouse. Even Cathie Wood, one of Tesla’s most vocal supporters, believes robotaxis could have up to 80% margins. That sounds amazing until you realize how far we are from making it a reality.
According to some analysts, FSD and robotaxis could take 5 to 10 years, at best, to scale. That’s a long time to wait for technology still in development, with major regulatory and safety hurdles ahead. In the meantime, Tesla’s fundamentals don’t exactly scream “buy.”
A Huge Leap Is Needed
Analysts expect Tesla to grow revenue at a respectable 23% CAGR over the next five years. However, to justify its current market value of about $813 billion (based on a share price of $259), Tesla would need to grow its operating margins from 7.8% today to a staggering 35% by 2029. That’s a huge leap. Most car companies don’t even come close to those kinds of margins, and even many SaaS firms struggle to get there.
In the following chart provided byEV autos towards energy, storage, and other services.”> Main Street Data (MSD), Tesla’s revenues are gradually shifting away from EV autos towards energy, storage, and other services.
Even if Tesla shifts some revenue into energy, storage, and services, it won’t magically turn into a software business overnight. And the market might be getting way ahead of itself in pricing that in.
Geopolitics Tensions and Tariffs
Then there’s the geopolitical wildcard. Trump’s new 25% tariff on imported cars and parts might give Tesla a short-term bump in the U.S. But let’s not forget: other countries won’t just sit there. If they hit back with their own tariffs, Tesla’s cars could get a lot more expensive overseas, which could erase any gains from the American protectionist boost.
So, where does that leave Tesla and engaged investors? Tesla’s long-term potential might still be huge, but the stock’s current price is already baking in a best-case scenario. If that doesn’t happen soon (and there’s good reason to think it won’t), investors banking on AI dreams might get stuck in traffic.
Is TSLA Stock a Buy, Hold, or a Sell?
Turning our attention to Wall Street, Tesla is considered a Hold based on 37 ratings. The average price target for TSLA stock is $315, implying a 17.34% upside potential.