Tesla (NASDAQ:TSLA) stock hit a 52-week high of $488.54 in December 2024, riding the crest of Donald Trump’s election victory wave. Since then it’s fallen 45% by the time of writing.
Anyone unlucky enough to have put £10,000 into Tesla right at the peak will now be sitting on £5,500. And according to Wells Fargo, that value could be slashed to just £2,750 if a forecast for a further 50% fall comes true.
Investors should be cautious before thinking of acting on an analyst’s take. But we can learn by investigating their reasoning.
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Falling sales
Fears are growing that President Trump’s tariffs, which would hit parts imports, will hurt Tesla along with other motor firms. And even CEO Elon Musk has said the tariff impact on his company is likely to be significant.
Rising dissatisfaction with Musk’s political activities is hurting US sales in some geographies. I’d see it as a mistake to judge the stock on that. But Wedbush analyst Dan Ives, one of the biggest Tesla bulls, says investors are going through a “white-knuckle moment.” He says “Musk needs to change course here … Tesla’s future depends on it.“
Tesla benefits from a $7,500 tax credit on electric vehicles (EVs), but the US government looks set to ditch that. Tariff responses by other countries won’t help. The UK government is looking at the benefits Tesla gains through tax subsidies here, with reciprocal duties on it an option on the cards.
Target downgrade
Wells Fargo thinks declining global sales could see Tesla’s earnings per share (EPS) fall 25% in 2025. And the financial giant has cut its price target for the stock to just $130.
Tesla is due to report Q1 vehicles deliveries today (2 April), and the news might be out by the time you read this. As I write, we’re looking at a broker consensus for a 3.7% fall. Some though, think the dip could be as much as 12%.
So is it time to dump Tesla stock and run? Well, the EV pioneer still has a lot going for it. And I think the biggest headstart it has over rivals could be its autonomous driving and robotaxi plans. It all seems to be technically more advanced than rivals.
Regulatory approval looks like the biggest challenge. But Tesla is developing the technology in a market with traditionally less regulation than most. And the current government definitely has a low-regulation mindset.
Valuation
The biggest hurdle for me has always been the sky-high valuation. And we’re currently looking at a forecast price-to-earnings (P/E) ratio of 108. I can’t resist comparing that to other Nasdaq stocks, like Nvidia on just 25 and Apple on 30.
A big valuation is not a problem in itself if future growth is there to back it. And Tesla’s P/E has been higher and is forecast to keep falling in the coming years.
Tesla is too risky for me right now. But I think long-term tech investors could still do well to consider it, especially if we see more price falls.
