At the time of writing, the Tesla (NASDAQ:TSLA) share price is up 42% over one month. Of course, the catalyst for this surge is the re-election of Republican candidate Donald Trump — his biggest donor was Tesla boss Elon Musk.
It’s not just Musk’s Tesla stock that has surged. Reports suggest that his SpaceX venture is looking to raise more capital, valuing the firm at around $250bn — up from $180bn in the summer. Meanwhile xAI has recently raised $5bn, with the artificial intelligence firm valued at $45bn — double its valuation a few months ago.
But what about Tesla? What do the forecasts say about the firm and will it live up to its share price?
What analysts say
The average share price target for Tesla is $207. That’s 33% below the current share price, inferring that the stock is overvalued vastly. In fact, I don’t think there are any other large-cap stocks that trade so far above their average share price target.
These are the targets of major institutions like HSBC and other brokerages. But it’s true that other analysts remain very bullish on the company. Cathie Wood’s Ark Invest, for example, has suggested that Tesla stock could reach as high as $3,100 by 2029.
Tesla’s earnings forecast
Tesla certainly divides opinion among analysts, and the earnings forecasts and valuations present a mixed picture.
Analysts project earnings per share (EPS) to decline in 2024 before rebounding with stronger growth in subsequent years. The average EPS estimate for 2024 is $2.49, representing a 20.33% year-over-year decrease.
However, EPS is expected to grow by 31.27% in 2025 to $3.26, with continued growth forecasted through 2030.
Tesla’s forward price-to-earnings (PE) ratios remain high compared to traditional automakers, reflecting investor expectations of future growth. The forward P/E for 2024 is 125.19 times, gradually decreasing to 43.26 times by 2029.
However, it’s clear that these figures are crazily high for an electric vehicle (EV) manufacturer. Instead, investors are banking on Tesla winning in autonomous driving and robotics. The problem is, Tesla appears to be falling behind its robotaxi peers.
| EPS | P/E | |
| 2024 | 2.49 | 125 |
| 2025 | 3.26 | 95 |
| 2026 | 4.06 | 76 |
| 2027 | 4.63 | 67 |
Can we justify the valuation?
I haven’t covered exactly why Tesla stock surged when Trump won. So, why is Tesla trading so much higher? Well, it’s because Musk is tipped to have an efficiency role in the new administration and this may allow him to lobby for nationwide autonomous driving regulations that will benefit his robotaxi operations.
However, we saw the Tesla share price slump on Thursday 14 November after Trump said he’d remove EV subsidies. There’s clearly pros and cons for Tesla under a Trump administration.
For me, the bottom line is that Tesla doesn’t currently justify its valuation. While the company’s innovative potential is impressive, bringing new technologies to market at scale is fraught with challenges. The high expectations built into Tesla’s stock price leave little room for setbacks or slower-than-anticipated growth.
This post was originally published on Motley Fool
