Tesla (NASDAQ:TSLA | TSLA Price Prediction) is undoubtedly one of the most divisive stocks in the market. The company’s CEO has made sure of that, with Elon Musk’s outspoken behavior and foray in the the world of politics turning this company into a love-it or hate-it type of entity.
Certainly, Elon Musk isn’t the first CEO to wade into political waters. Plenty of other companies have leaders who look for special favors from incoming administrations, and in that regard, one could argue that Musk has worked relatively well with both sides of the aisle.
That said, with very divergent views on where the largest EV company in the U.S. (now third-largest in the world, giving up its pole position to two companies in China which are dominating this race today), let’s dive into a bull and bear case on Tesla and where this stock may be headed next year.
The Bull Case
The bull case around Tesla’s ability to grow much faster than the overall market, and many of its Magnificent 7 peers, really centers around the idea that the company’s autonomous driving, robotics and AI divisions will be able to grow much faster than the company’s core electric vehicle (EV) business.
I think there are certainly catalysts that could bring about such a future. For one, CEO Elon Musk’s new $1 trillion pay package is heavily tied to the company hitting some aggressive growth numbers on these key business segments. If the company can outperform, and deliver even more growth from these business lines which could be extremely profitable, then the market is indeed pricing this company as more of a tech/AI play than an automobile maker.
The company’s ability to vertically integrate with its already-robust AI offerings, and the potential for deliveries to climb once again in a key market like China, could propel Tesla higher in 2026 as investors look for size and growth potential in the auto sector.
Indeed, if Optimus does in fact become a meaningful business (with Musk’s Master Plan IV signaling this business could be 80% of Tesla’s current sales), that’s a big potential jump in the years to come. I suppose it all comes down to investors’ collective credence in Elon Musk’s ability to turn his vision into reality. Thus far, at least, investors have been punished by the markets for going short any of his ideas.
The Bear Case
Tesla’s bear case really comes down to focusing on Tesla as an automobile maker. If one does that, the company’s core EV business does look weak. Overall, this sector is facing a range of headwinds, from EV tax credits that have now expired, to slumping sales in key global markets such as China (with competition in that market picking up considerably).
Now the world’s third-largest EV maker by total volume (two Chinese companies are now leading the way), Tesla’s global market share has dwindled. And even within the U.S. market, only 40% of new EV sales are coming Tesla’s way. That’s a far cry from the early pandemic days, when consumers really only had one reliable option to choose from.
Given this highly competitive backdrop, Tesla’s growth forecasts have turned negative, the company’s margins continue to be under pressure and erode, and a relatively stale lineup with no meaningful refreshes in years has some Tesla buyers looking for more attractive options.
That’s to say nothing to the political controversies that have come as a result of Musk’s foray into the political sphere. No matter what an investor thinks about Tesla’s brand, this company’s overall global cachet has diminished meaningfully in recent years, and that point really isn’t up for debate.
The Verdict
Most readers are well-aware that I’m generally bullish on Tesla, with my perspective mostly siding with much of the bearish narrative around Tesla’s valuation relative to its core automotive business.
That said, I can also understand the perspective ultra-bulls on Tesla have, with respect to the ability of the company’s CEO to find ways to pivot into the most profitable areas of tech many of us thought may take more time to commercialize.
I do think Tesla stock will ultimately be a barometer for how the overall U.S. stock market does next year. And on that front, I’m expecting some bigger headwinds in the year to come than most in the financial media.
As such, I’m taking a skeptical and cautious approach to highly-valued companies like Tesla right now. In my view, this stock is still a sell (or maybe a hold for those who bought Tesla stock at a much lower price, and don’t want the tax hit right now).
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