Investing

Here's Why the Rally in Tesla (TSLA) Stock Could Just Be Getting Started

Chris MacDonald

Published: December 19, 2024 11:18 am

One company that should be at the top, or at least near the top, of any investor list of most-watched stocks has to be Tesla (NASDAQ:TSLA). The U.S. EV maker continues to be one of the most volatile mega-cap names in the market, with a valuation that’s back above the key $1 trillion level and one that’s once again made new all-time highs in recent days, surging past the $420 level – making many Tesla investors happy campers for a number of reasons.

The recent re-election of Donald Trump to the White House has certainly been among the key catalysts for Tesla, given Musk’s close ties to Trump and reports that the Tesla CEO raised spent $277 million on the former president’s bid for the White House. Expectations that Mr. Trump will provide a regulatory environment for Tesla that will outwardly favor the EV giant has propelled this stock to record highs, and many are now betting that this move is one that could continue well into 2025 and beyond.

Let’s dive into the bull case behind why so many investors continue to ratchet up bets on this trillion-dollar company, and where Tesla may be headed from here.

Key Points About This Article:

• Tesla remains among the most prominent stocks in the market, and continues to demand a growing mind share for many investors, for good reason.
• Here’s the bull case behind why Tesla’s recent move could continue, and where this stock could be headed from here.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Elon Musk Continues to Portray Confidence

Tesla CEO Elon Musk has continued to put forward bullish estimates of where he sees Tesla’s sales headed over time, and the market appears to be following along with his forward expectations. The company’s stock price has rocketed more than 80% higher on a year-to-date basis, as investors price in much higher revenue moving forward from the company’s robotaxi operations and future expected revenue and earnings from other divisions such as robotics over time. 

Of course, putting precise numbers on these business lines will be hard to do, but Tesla investors who invested in the company in its early days (pre-revenue) have certainly been rewarded with some impressive growth over time. The thinking among many bulls appears to be that if these businesses pan out to just a small fraction of what some of the most bullish expectations are calling for, these could be some rather large businesses over time. Again, I’m not willing to assign any sort of multiple to these potential verticals, as there’s likely going to need to be years of development work done to make them into realistic cash flow machines, but the market is rightly assigning a “Musk premium” to Tesla stock for now.

One thing is for certain, though. With the election of Donald Trump to the White House, Elon Musk has a friend in government who can put in place the right people to provide a regulatory backdrop that’s much more amenable to the company’s growth endeavors. Until this catalyst wears off in terms of its perceived importance to Tesla’s future earnings, this is a stock that clearly has impressive momentum right now.

A Fundamental Case for More Upside?

There’s certainly a case that a significant portion of Tesla’s recent surge to new all-time highs can be attributed essentially entirely to hype and momentum. However, these factors could be built upon expectations of much stronger fundamentals moving forward. That is, if Tesla’s market share in the U.S. really does skyrocket as a result of the removal of tax credits for EVs (a paradoxical outcome, but one which many believe could drive competitors out of the market and allow Tesla to earn outsized profits for some time).

We’ll have to see how Tesla’s earnings profile changes over time, and if the more favorable environment in 2025 will indeed lead to the kind of earnings growth the market is pricing in. Right now, the company is trading at 120-times trailing earnings and 125-times forward earnings, meaning the market is actually expecting Tesla’s earnings in 2025 to come down. But the whisper numbers are certainly different, and it’s clear that many bulls are taking the over when it comes to the company’s fundamentals.

What could be more likely is that investors are looking past what could be a bumpy 2025 toward 2026, which could be a much better year if competition is reduced and the company’s robotaxi/FSD rollout goes according to plan. We’ll have to see – Elon Musk has certainly been one heck of a salesman with his timelines and targets in the past.

Analysts Think More Upside Is Ahead

I’m certainly not the only investor exploring the idea that Tesla could rise, and do so substantially, from here. Plenty of Wall Street analysts have taken the view that more upside could be ahead.

Perhaps most notably, Morgan Stanley analyst Adam Jonas recently raised Tesla’s price target to $400, citing strong sales growth in China as a key driver of near-term demand for this stock. Chinese sales accounted for 40% of third-quarter sales and is accelerating in the fourth quarter, with more upside potential over the coming year. Indeed, if the Chinese government can also coordinate a soft landing with all the stimulus measures going on there, perhaps there’s something to this story.

Right now, I think most investors are clearly taking the very long-term view when it comes to Tesla. If the market becomes more near-sighted, that may not be a good thing for this stock. But barring any major changes next year, I think there’s good reason to believe that this is a company that could certainly continue to rocket higher.