Reasons Analysts Remain Optimistic About Tesla Stock Despite Its Decline From December Highs

Tesla stock has faced challenges since its peak in December, but some Wall Street analysts still see potential opportunities by 2025.

 

The electric automaker's stock is experiencing a correction, declining about 18% from its all-time high closing price of $479.86 on December 17. This sell-off, initially triggered by a broader market downturn, intensified last week after Tesla reported missing annual delivery targets for the first time.

 

The stock further declined by 4% on Tuesday, trading around $395.30 per share.

 

Despite the early 2025 stock weakness, some analysts maintain that the stock has further upside potential this year.

 

Artificial intelligence could be a bullish factor for the stock, according to Dan Ives of Wedbush Securities, who forecasts that companies will spend $2 trillion on AI investments over the next three years.

 

"We've continuously discussed the AI Revolution over the past few years as we believe it represents the most significant tech transformation in over four decades," noted Ives. "Now it's time for the broader software sector to join the AI movement as use cases are rapidly increasing."

 

Here's what analysts are saying about Tesla stock's recent challenges and why the automaker's shares might still experience significant gains in 2025.

 

Consider the Decline a Buying Opportunity: Wedbush Securities

 

According to Wedbush, Tesla's recent stock decline presents a buying opportunity for investors. The firm cites Tesla's "respectable" sales performance from the previous year, highlighting that the company delivered roughly 495,600 vehicles, just slightly below the projected 504,800 units.

 

Tesla is expected to release new models this year, potentially boosting its stock. Analysts reference the low-cost Tesla model Musk has been hinting at for years.

 

"We believe Tesla remains the market's most undervalued AI investment," analysts claimed, expressing "high confidence" that Tesla could increase its delivery growth by 20%-30%.

 

"Tesla's focus for 2025 is on accelerated delivery growth and full self-driving penetration, with the autonomous vision as Musk & Co.'s ultimate goal. We are strong buyers during any sell-off today due to weaker 4Q delivery numbers."

 

The firm reaffirmed its "outperform" rating on the stock and its $515 price target, suggesting a 31% upside from current levels.

 

Stock Appears Inexpensive: Stifel

 

Tesla's stock seems appealing at its current price, considering the company is more than just an automotive entity, according to Stifel analyst Stephen Gengaro.

 

"If you're purchasing the stock solely because they sell EVs, it seems overvalued. However, when considering full self-driving initiatives and how it could enhance the Cybercab business over time, it becomes a substantial value driver for the stock in the medium- to long-term," Gengaro commented in a conversation with Yahoo! Finance on Monday.

 

Musk's increasing interaction with president-elect Trump in recent months is also viewed as positive. It positions him to potentially impact full self-driving technology regulation, as Gengaro pointed out.

 

Furthermore, Tesla might benefit if Trump fulfills his plans to impose steep tariffs on U.S. imports from other nations. These tariffs could lessen competition from Tesla's U.S. rivals, another advantage, according to Gengaro.

 

"Musk is clearly involved in the conversation about accelerating regulation for FSD, opening up various growth prospects for the company over time."

 

In a Monday note, the firm raised its price target for Tesla shares to $492, indicating a 25% upside from current levels.

 

Full Self-Driving Could Approach a Valuation of Half a Trillion Dollars: BofA

 

Bank of America analysts downgraded their Tesla stock rating to neutral in a Tuesday note but increased their price target to $490 per share, suggesting approximately a 25% upside from current levels.

 

They estimated that Tesla's full self-driving technology could have a worth of about $480 billion. Meanwhile, the robotaxi segment might be valued at approximately $420 billion within the US and over $800 billion in global markets, the bank projected.

 

"We tested FSD during our visit to Tesla's gigafactory in Austin, TX in December, and we were impressed by its capabilities," analysts noted, forecasting that by the end of the decade, 23 million vehicles could be equipped with full self-driving software. "FSD is poised to deliver significantly higher margins compared to Tesla's primary auto business and could generate billions in EBIT annually."

 

Additionally, Tesla has several positive prospects in 2025, including possibly launching the robotaxi business and potentially increasing production of Optimus, its humanoid robot, according to the bank.

 

The analysts acknowledged that long-term growth drivers support their price target, although they conceded that there is considerable execution risk.

 

Strength in Energy Storage: Morgan Stanley

 

Morgan Stanley suggested that Tesla's minor delivery shortfall might be insignificant, considering newer facets of its business that will fuel future growth. Analysts highlighted the anticipated lower-priced vehicle model, along with its energy storage business.

 

Energy storage deployments exceeded expectations by roughly 15% in the fourth quarter, while energy storage growth rose about 113% over the 2024 fiscal year, the analysts pointed out.

 

"In our opinion, the shortfall reflects a relatively dated product and greater availability of more affordable competition internationally, prior to the anticipated introduction of the more affordable model (Juniper) in early/mid-2025, offsetting pre-buying and promotional efforts," the analysts wrote.