Tesla: Buy, Sell, or Hold?

Shares of Tesla (NASDAQ: TSLA) had a phenomenal run in the last several weeks of 2024, virtually doubling in about two months' time. This is largely due to the market's enthusiasm about the company's prospects under President Donald Trump.

It hasn't been a smooth ride at all this year, though. Since the electric vehicle (EV) stock hit a record high in December, it has dropped a worrying 51% (as of March 19). Investors seem to be losing confidence in what was once a Wall Street darling.

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Is there an opportunity here? Continue reading to find out if Tesla stock is a buy, sell, or hold right now.

No longer a highflier

Adding fuel to Tesla's stock dip was the company's fourth-quarter financial update. The business did not please its shareholders, to say the least.

For starters, Tesla reported revenue of $25.7 billion in Q4, which missed Wall Street expectations. That top-line figure was up just 2% year over year, a drastic slowdown from the monster gains registered in prior years.

Tesla delivered 1% fewer vehicles in 2024 than it did the year before, marking the first annual decline ever. Investors have become accustomed to seeing the business post monster growth, so this was an unpleasant surprise. It's even worse when you consider the numerous price discounts Tesla put in place on its EV lineup throughout 2024.

The EV industry has become very competitive, with Tesla no longer the only game in town. While the business certainly has the brand recognition and technological and design prowess to stand out, there are rivals both domestically and internationally aiming to take a piece of the pie.

These negative trends have impacted the bottom line. Tesla's 2024 operating margin of 7.2% is less than half the 16.8% from 2022. Ongoing economic uncertainty presents a clear headwind to improving financial results in the near term.

Betting on a different future

Tesla's strongest supporters believe the business will transform itself into a totally different company in the future. Founder and CEO Elon Musk believes that the business will develop its full self-driving technology to the point of one day launching a global robotaxi service that sees "quasi-infinite" demand.

Starting in 2026, the business says it will start production of the lower-cost Cybercabs. Considering Musk's history of missed deadlines, investors shouldn't be surprised if progress is slower than expected. Of course, there are still technical and regulatory hurdles to clear for autonomous driving tech. What's more, people must feel safe in unsupervised cars.

There's also Optimus, Tesla's humanoid robot that can perform tasks in both personal and professional settings. "Optimus has the potential to be north of $10 trillion in revenue," Musk said on the Q4 2024 earnings call. That's an exciting number, but maybe it's best to temper expectations as it's still in the very early stages.

Priced at a premium

Although the stock trades 51% below its peak, investors might be surprised to know that the current price-to-earnings ratio is still a hefty 115. The company generates the bulk of its sales from EVs, a challenging market in recent times, but its valuation exceeds that of dominant companies like Nvidia or Apple. That seems unwarranted.

Despite the stock price falling off a cliff this year, I still think Tesla is a sell candidate. Shares remain overvalued, in my opinion. And they reflect the ongoing optimism the market has regarding what the business could become one day. That doesn't leave investors with any margin of safety. In fact, it requires heroic assumptions for the stock to perform well.

However, I can understand why the company's biggest bulls view the stock as a buy-and-hold candidate. It's historically been a bad idea to bet against Musk. And the current dip might be an opportunity that's too hard to pass up. Ultimately, it comes down to your individual risk tolerance and belief (or skepticism) about Tesla's trajectory.

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Nvidia, and Tesla. The Motley Fool has a disclosure policy.