Tesla Stock Is Down Big in 2025. Buy, Sell, or Hold?

It's been a rough year for Tesla (NASDAQ: TSLA) shareholders, marked by a huge decline in the stock price as investors try their best to wait around for a reacceleration in the electric-car maker's growth. Tesla's management team is signaling to investors that the first half of 2025 will be a transitional period for the company, with any big growth coming in the second half of the year or even next year. But investors don't seem to be buying into the narrative with the same bullishness as they have in the past.

Of course, uncertainty is normal in business and investing. Some opportunistic investors, therefore, may see the fear surrounding the stock and the subsequent pullback in the stock price as Tesla navigates this transition as a good time to invest in the company. Is this really a buying opportunity or a sign of deeper trouble ahead?

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Big headwinds

Tesla's strong growth recently has come to a screeching halt. The Elon Musk-led company saw revenue rise last year just 1% year over year in 2024. Further, growth was still unimpressive as the company exited the year.

Fourth-quarter 2024 revenue, specifically, rose just 2% year over year. And how did Tesla's core automotive business perform? The key segment's revenue fell 8% year over year during the period.

Higher interest rates and an uncertain economy are wreaking havoc on Tesla. Not only did unit sales barely grow in the fourth quarter of 2024 (they grew 2% year over year), but automotive revenue also tanked as the company aggressively cut prices.

Big aspirations without the sales to back them up

Tesla has ambitious plans for the future. CEO Elon Musk believes the company has been laying the groundwork for a huge acceleration in growth in the future -- one driven by new technologies, like autonomous driving and humanoid robots.

"We made many critical investments in 2024 in manufacturing, AI [artificial intelligence] and robotics that will bear immense fruit in the future, immense." Musk said in Tesla's fourth-quarter earnings call. "Like it's, in fact, to such a scale that it is difficult to comprehend."

Later in the call, Tesla said the company plans to roll out a more affordable vehicle during the first half of the year, launch an autonomous driving network this summer in Austin, and produce around several thousand humanoid robots -- called Optimus -- this year.

However, investors seem to have doubts that Tesla's business can rise sharply higher in an economy like this. These aspirations come amid a backdrop of struggling sales and production figures.

One big reason to remain on the sidelines

It's worth noting that even though investors don't have as much faith in Tesla's growth aspirations as they used to, they clearly still have some faith. Otherwise, the company wouldn't boast a market capitalization of about $850 billion, as of this writing. In addition, the stock's price-to-earnings ratio (P/E) currently sits at approximately 130. The Street, therefore, has priced in a significant step change in Tesla's earnings in the coming years.

Sure, its shares may not be priced like Tesla is on its way to potentially becoming the most valuable company in the world one day, as Elon Musk has predicted on several occasions (including the company's most recent earnings call). However, the stock still carries a huge premium over the S&P 500's (SNPINDEX: ^GSPC) current price-to-earnings multiple of about 21.

To be fair, not all of Tesla's growth catalysts are taking a breather in this market. Tesla's energy business is charging ahead and continues to see demand exceed supply, even as sales soar. But Tesla will likely need a reacceleration in its core automotive business for investors' bullishness on the stock to return to levels seen in the past.

While Tesla's long-term prospects may hold promise, there are significant risks. The current challenges and valuation suggest that caution is warranted.

Shares ultimately look more like a hold on this pullback than a buy, but investors should do their own due diligence and decide for themselves how much they believe in Tesla's future growth plans. After all, it will be the company's future (not its past) that will determine how well the stock will perform. For those who don't like to speculate, this may be a stock worth passing on.

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Daniel Sparks and/or his clients have positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.