Tesla’s (TSLA) stock isn’t looking great, but the bigger picture still does. In the last quarter, Tesla’s fundamentals slipped in key areas, including revenue, profit margins, and free cash flow. However, Tesla stock bulls don’t seem too worried about these issues because nearly all of Tesla’s current valuation is based on its future potential in AI and autonomous vehicles.
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While it may seem strange to stay bullish on Tesla when the stock trades at triple-digit price-to-earnings ratios and suffers declines in key metrics, I still think buying Tesla when it’s weak—despite the stretched valuations—makes sense.
In my view, what Tesla is doing is transformational, and most of the time, traditional growth models and spreadsheets fail to account for new revenue streams and the wide margins that Tesla’s new ventures should bring. Currently trading ~13% lower year-to-date, now may be a good time to buy up this electrifying manufacturer on the dip.
EV Business Leading to Tesla’s Fundamentals Decline
First of all, it’s important to mention that Tesla’s business fundamentals are facing many challenges right now. Starting with the fact that Tesla’s automotive revenues are down by 8% year-over-year to $19.8 billion in the most recent quarter. This brings us to the second issue: profit margins are also dropping—down to 16.3% compared to 17.6% in Q4 last year and 19.8% last quarter. This is surprising since Tesla reported higher deliveries than in Q3, which had strong margins.
The margin drop is even more surprising because Tesla’s cost of goods sold (COGS) has decreased. This shows just how much Tesla has had to lower its average selling price, which has hurt its margins. Still, even with the lower margins, Tesla’s 16.3% gross profit per vehicle is way better than the competition in the U.S.
Another issue is that operating margins also took a hit, dropping to 6.2% in Q4, down from 10.8% in Q3 and 8.2% in the same period last year. On top of that, free cash flow dropped to $2 billion in Q4, which is a 2% decrease compared to the previous year, and for the full year 2024, it fell by 18% to $3.6 billion.
So, looking at the whole picture, it’s clear that Tesla is dealing with some serious struggles and declines, especially with increasing competition and poor prospects in the electric vehicle industry.
What Really Matters for Tesla
For many Tesla bulls, what really matters isn’t the company’s recent EV sales performance. While earnings will be important in the next few quarters, the real story is about AI and autonomous driving technology creating additional high-margin revenue streams.
According to Dan Ives, a longtime Tesla bull at Wedbush, “90% of the [Tesla] story right now is about AI, autonomous vehicles, and Cybercab.” He also points out that the potential in these areas could be worth a trillion dollars, which should be the focus for anyone bullish on Tesla.
Personally, I agree with Ives. I see a bullish case for Tesla over the next 3-5 years as the company continues building its autonomous ecosystem. In the short term, there could be a boost from a new revenue stream like its Robotaxi ride-sharing program. Looking further ahead, the Optimus robotics program is starting to take shape. This could eventually lead to improved operating margins on the production line—Tesla could even use Optimus robots to help or replace workers in its manufacturing plants.
The risk, though, is the timing of these advancements. Investors could get impatient waiting for a return from autonomous vehicles, Robotaxi, and robotics. Musk has a history of missing deadlines, and the push for lower-cost vehicles could continue to squeeze Tesla’s margins and drive up its valuations. But let’s not forget Elon Musk is a marketing genius. He’s great at promoting the company and convincing investors about Tesla’s future prospects—something that no other company does as well.
Technical Analysis Supports Bullish TSLA Outlook
The big debate around Tesla is whether trading at 124x forward earnings is necessary to support its growth story and keep the stock thriving. If not, delays in monetizing AI and autonomous vehicles could lead to downward estimate revisions, which might cause the stock to drop significantly.
However, even if this second scenario plays out, investors can capitalize on Tesla stock if expectations remain high. In this case, a simple moving-average strategy—like buying when the share price rises above the moving average and selling when it falls below—could work well.
Given Tesla’s high volatility (50% annualized), I think keeping an eye on the 200-day moving average makes more sense. Long-term moving averages help smooth out short-term price swings so investors can focus on wider trends and avoid unnecessary trades.
For example, Tesla’s 200-day moving average is currently at $267.80, well below its current price of $361.62, showing an uptrend. In other words, it’s a good time to go long. But keep in mind that the real benefit of using this moving-average strategy will probably come if or when the stock drops more sharply.
Is Tesla a Buy, Sell, or Hold??
On Wall Street, TSLA stock carries a Hold consensus rating based on 12 Buy, 12 Hold, and 10 Sell ratings obtained over the past three months. TSLA’s average price target of $335.86 per share implies a 4.2% downside potential compared to current levels.
Short-Term Pain for Long-Term Gain
Tesla’s stock price is largely driven by expectations that its AI and autonomous vehicle innovations will revolutionize the automotive industry—an ambitious vision led by CEO Elon Musk, one of the world’s most influential figures.
Despite recent struggles, including declining revenue and profits amid broader industry challenges, focusing too much on Tesla’s short-term setbacks could mean overlooking its long-term potential. Traditional valuation metrics like price-to-earnings (P/E) ratios fail to fully account for the disruptive impact Tesla could have on the automotive, ride-sharing, and robotics sectors. With this perspective in mind, I remain bullish on Tesla stock.
