Tesla’s Trillion-Dollar Quest: A Return to Glory or Descent into Despair?

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Last year was wild one for EV company Tesla (NASDAQ:TSLA). The stock surged higher toward year-end, as Tesla surpassed most of its earnings expectations. However, it appears Tesla’s delivery records were more of a result of the company’s price-cutting strategy, with CEO Elon Musk delivered a disappointing outlook due to inflation and low consumer demand. Thus, to kick off 2024, TSLA stock has been on a rather bearish trajectory, losing more than 20% of its value in short order. This is a crucial part of this TSLA stock outlook.

Now, given the backlash and challenges facing Tesla, this EV maker stands out as the lone Magnificent 7 stock below $1 trillion. This has bulls suggesting TSLA stock is now poised for a potential surge. Valued at $586 billion, recent fluctuations overshadow long-term concerns. Tesla has reached the $1 trillion market capitalization twice, but balancing cost-cutting and profitable growth remains pivotal for such a thesis to play out.

But before diving into Tesla and buying the stock, looking at both sides of the coin is essential. Let’s do just that.

The Bull Case

This week, TSLA stock rose two days in a row, increasing 6.2% to more than $200 per share. This move was driven by market shifts in Treasury yields more than other Tesla news, such as the ongoing dispute over Musk’s pay package. Despite a Delaware court’s decision to void Musk’s $56 billion compensation, an appeal is anticipated. Tesla has declined to comment on the matter, but keeping Elon Musk happy is clearly central to the bullish thesis around Tesla, as it’s his vision that drives a great portion of the company’s value.

On Wednesday, Tesla filed SEC papers revealing Musk’s ownership of over 20% of the company, including options affected by the Delaware ruling. This percentage remains unchanged from a year ago, despite headlines suggesting otherwise. Gary Black, co-founder of Future Fund Active ETF and a Tesla shareholder, dismissed the significance of these headlines, noting that the structure and total shares Musk controls remain the same. This is key to this TSLA stock outlook.

In other notable developments, Cathie Wood of Ark Invest has reportedly acquired over $160 million worth of Tesla shares in 2024. This investment fund now holds more than $640 million in TSLA stock across its ETF holdings, with Wood remaining confident with Tesla’s management team, regardless of its recent struggles.

In essence, Wood and her team have adopted a long-term perspective on Tesla. Ark analysts have set a $2,000 price target on TSLA stock, anticipating gains from its full self-driving (FSD) software and envisioning a fleet of robotaxis transforming transportation. Despite its high valuation, Wood remains optimistic about Tesla’s future, and her view is closely aligned with that of many bulls.

The Bear Case

The bear case on Tesla can really be viewed as the broader perspective. Given how poorly 2024 started out for Tesla, with a sharp market cap decline, many in the market appear to now be looking at the EV sector as a global one, with competition and price-cutting initiatives likely to eat into the historically high margins of many electric vehicle makers.

Importantly, Tesla is one of the worst performing stocks in the S&P 500. Moreover, the company is also experiencing high volatility, with the company seeing many challenges in different segments. Initiating an EV price war in China contributed to further selling pressure on Tesla and its Chinese competitors. Additionally, disappointing Q4 earnings and cautious delivery forecasts unsettled investors.

Tesla’s surge in 2021 was partly fueled by Musk’s promise of a 50% delivery growth annually. However, 2024 saw deliveries significantly below that mark for the third year in a row. With production challenges and no imminent new models, Tesla faces growth constraints. Additionally, China’s economic slowdown dampens prospects for Tesla and the EV sector.

Musk’s controversies deepened as he threatened to relocate AI projects unless he gained more control over Tesla. The Delaware court nullified his $56 billion compensation plan. Reports of drug use among board members added to governance concerns. These issues, including Musk’s behavior, contributed to Tesla’s stock volatility.

Be Cautious and Smart About TSLA Stock

After an excellent 2023, TSLA stock is now down 20% since 2024 began due to the company’s discouraging 2024 outlook. Investors and analysts now expect the stock to dip deeper into bearish territory, as the company signals negative growth. Projections for 2025 have improved, but remain lower than previous estimates.

I think there may be something to the longer-term bull thesis around Tesla. But I do also think that the days of insane growth, fueled by a first-mover position in a previously nascent market, are gone. Tesla will now need to compete in what’s turning into a very competitive market, with companies that have technology that is not only comparable, but some may suggest could be superior. That’s not something many bulls had on their bingo cards a few years ago. This concludes this TSLA stock outlook.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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