Tesla Inc.’s market value rose well above $1 trillion at the end of the year, but it might be harder to keep that up in 2025.
What will happen with CEO Elon Musk’s move into politics? This is one of the big questions for the coming year. And how quickly and easily will Tesla’s new projects, like a cheaper electric vehicle and redesigns for cars, hit the market?
Then there are questions about how to keep going in China, where competition is very strong in this important market.
Tesla TSLA +8.22% may have an ace up its sleeve, one that certainly helped the stock get to the end-of-the-year rally it experienced.
Tesla showed off its self-driving “Cybertaxi” in October. Wall Street criticized the event right away for not giving enough details and not sticking to a strict schedule. However, the event did spark Tesla’s stock run to a new record high earlier this year.
“Tesla has something that a lot of EV companies don’t have: a pretty real way to get to autonomy,” said Mobility Impact Partners partner Shay Natarajan.
End of EV tax breaks?
Trump’s transition team is thinking about stopping tax breaks for electric vehicles, but nothing official has come out of this yet. That being said, most people on Wall Street think that the benefits will soon be gone. It remains to be seen if and when they will be cut.
Tesla recently reported disappointing sales for the fourth quarter and 2024. On the other hand, Rivian Automotive Inc. RIVN +14.45% and Ford Motor Co. F +2.38% and General Motors Co. GM +0.78% earlier this week reported big jumps in their EV sales.
Some experts thought that the number of EVs sold would go up later in the year as people rushed to get the tax credits.
Musk got off to a good start in politics when he led the charge against a broad spending plan that congressional leaders had put forward and sent it back to negotiations. The shutdown was stopped in the end.
An executive director at Sino Insights named Tu Le said, “In the United States, people think that (Musk) is very close with Trump.”
In a recent note, analysts at Morgan Stanley said that ending discounts for electric vehicles would be “disruptive to near-term demand.” The longer-term effects on Tesla, on the other hand, “are more neutral or even relatively positive,” they said.
“Even Elon Musk has spoken out against consumer tax credits because he thinks they help less competitive products and hurt Tesla’s natural market share,” the analysts said. “In the end, getting low-cost products through technology, design, and scale makes long-term incentive programs paid for by taxpayers less useful.”
For Natarajan of Mobility Impact Partners, one way to look at the problem is to think back to when China made a similar move a few years ago and how that affected the market there.
China stopped or lowered subsidies for electric vehicles (EVs) in 2022, and Natarajan said that sales of EVs dropped by a large amount. Car companies cut prices to try to get people to buy their cars again.
But it didn’t have the effect that was wanted, at least not right away. She told them that people chose to wait and hoped that prices would drop even more. The drops in prices were bigger in China. She said that sales would have gone up again in 2024, but probably not as much as they were before.
She said, “Consumers don’t like uncertainty, and there’s always a wait-and-see moment.” This is something that could happen in the U.S. in 2025.
Natarajan said that Chinese automakers care more about market share than margins, so U.S. EV sales may not follow the same trend as those in China.
She said that whether incentives stay the same or change, the market will be less stable, which is “rarely good for consumers.”
Do AVs change the game?
Tesla’s self-driving cars may be a big reason why its stock price is rising, but not everyone is sure that they will continue to give the company an edge.
Tu Le, managing director at Sino Auto Insights, said, “I am not sure what to do.”
He said that Tesla is “so polarizing” right now in the U.S. that some buyers automatically rule out Tesla EVs. And Tesla may have gotten most of its early adopters by now.
Finally, Le made a guess: “If they’re lucky, sales will stay the same this year.” He also said that sales probably won’t grow by as much as Musk thinks they will in 2025.
Musk said that sales of cars should grow by 20% to 30% by 2025. Tesla sold 1.8 million cars in 2023. The company isn’t going to release its 2024 sales numbers until later this week, when it reports on the fourth quarter and the whole year. Tesla doesn’t say when the numbers will come in, but they usually start coming in soon after the end of the quarter.
No matter what, that 20% to 30% growth “is likely to prove aggressive,” according to a recent note from CFRA analyst Garrett Nelson.
Some things that could go against the economy are a stronger dollar, cheaper oil prices, and more oil being produced in the United States because regulations are being eased. Tax breaks are also likely to be phased out over time.
Next, there’s Full Self Driving, which is Tesla’s set of advanced driver aid systems for driving in cities. Le from Sino Insights said that Wall Street thinks it “changes the game.”
He said it wasn’t clear if Wall Street thinks FSD will be used everywhere in China or if the U.S. market alone would be enough to give people hope for Tesla’s stock.
Tesla is still a company that makes cars at its core. It’s likely that FSD will be easier to implement in a Trump government, but Tesla probably won’t have an easier time in China, which is a very important market.
It’s not clear that FSD is the winner in China when it comes to autonomy. Other car companies and autonomy companies give it “major competition.”
Le said that even if Tesla makes a cheaper electric vehicle in the future, it will still have to compete with a lot of other brands. He also said that the planned update of the Model Y might not be enough, and price wars probably won’t end in 2025.
In a recent note, Deutsche Bank analysts did say that China is “perhaps most consequential” for Tesla but also “the biggest uncertainty.” Many people in that country like Musk, and Tesla is the only foreign carmaker that makes sense in their EV market. But, they said, it’s still unclear whether Musk’s influence would be enough to make the two economies work together again in a way that benefits both.
