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Tesla (TSLA), the electric vehicle (EV) and clean energy powerhouse, has long been a stock that polarizes Wall Street. Its meteoric rise has captivated investors, with the company consistently pushing the boundaries of innovation in the automotive, energy storage, and artificial intelligence (AI) sectors. Recently, TSLA stock received another vote of confidence from a major financial institution. Bank of America (BofA) raised its price target on the stock to $400 from $350, underscoring the firm’s belief in Tesla’s ability to capitalize on game-changing opportunities.
BofA’s bullish outlook is rooted in Tesla’s pursuit of several high-impact initiatives, including its much-anticipated robotaxi rollout and the development of its humanoid robot, Optimus. These projects have the potential to disrupt traditional industries, boosting Tesla’s top and bottom lines. As the company continues to innovate at a breakneck pace, investors are left wondering: Is now the right time to buy into Tesla’s vision, or should they proceed with caution, given its lofty valuation?
This article dives into the reasons behind Bank of America’s upgraded price target, examines the catalysts driving Tesla’s growth, and evaluates whether the stock still holds value at current record-high levels.
About Tesla Stock
Tesla (TSLA), based in Texas, is dedicated to accelerating the global transition to sustainable energy. The company designs, develops, manufactures, leases, and sells high-performance fully electric vehicles, solar energy generation systems, and energy storage products. It also provides maintenance, installation, operation, charging, insurance, financial, and various other services related to its products. In addition, the company is increasingly focusing on products and services centered around AI, robotics, and automation. TSLA’s market cap currently stands at a staggering $1.36 trillion.
Year-to-date, shares of the EV maker have rallied about 70.9%, outperforming the broader market. Notably, TSLA stock surged about 22% in a single late-October session following upbeat Q3 results and and is up 68% since Donald Trump’s election victory.
BofA Predicts Strong Growth for Tesla in 2025
On Dec. 5, TSLA stock rose over 3% after BofA Securities increased its price target on the EV maker by $50 to $400 and reaffirmed its “Buy” rating following a visit to its gigafactory in Austin, Texas.
“The trip gave us increased confidence that TSLA is well positioned to grow in 2025+ with its core EV business and launch of its robotaxi offering, and longer-term from its investments in Optimus,” BofA senior auto analyst John Murphy told investors in a note.
The firm also recognizes opportunities for Tesla to improve its margins, which are currently driven primarily by hardware sales. However, the analyst noted that there will be a shift towards more margin-accretive software offerings, including Full Self Driving (FSD), premium connectivity, and charging services.
BofA also mentioned that the company’s FSD technology is approaching a point where it would only require intervention once every 10,000 miles. This indicates that Tesla could safely launch a monitored robotaxi business.
In addition, Tesla plans to deploy 1,000 Optimus robots, primarily in its plant, by the end of 2025. BofA anticipates that the Optimus initiative could benefit from additional capital through an equity raise aimed at funding increased compute capacity - a move likely to be well-received by investors.
“We expect (Tesla) to efficiently and effectively deploy capital, as the company has demonstrated with its focus on organic cash generation. That said, there could be a point at which it may make sense for it to raise capital to accelerate the development of these technologies,” BofA said.
Robotaxi Could Be a Game-Changer for TSLA
Tesla stands on the brink of significant transformation, as the incoming Trump administration focuses on advancing AI and autonomous vehicles. Wedbush analysts consider TSLA to be the most undervalued AI-driven stock in the market today, with an estimated $1 trillion in potential AI-related value. They project the firm could achieve a $2 trillion market valuation within the next 18 months.
Recent reports suggest that Trump’s transition team plans to prioritize the development of a federal framework for self-driving cars. This development is anticipated to boost Tesla’s ambitions for autonomous vehicles, especially with its Cybercab project. Cybercab is a battery-powered autonomous robotaxi designed without a steering wheel or pedals. Musk outlined a vision of producing between 2 million and 4 million Cybercabs annually, as he mentioned to analysts during the company’s latest earnings call. Moreover, Musk stated that the cost would be in the ballpark of $25,000. Tesla intends to launch a robotaxi service in California and Texas next year.
A number of analysts expressed confidence in the future of Cybercabs and its potential impact on the company. Bank of America's John Murphy earlier remarked that the product has the potential to be “a real moneymaker.” On June 12, Ark Invest revised its Tesla stock price target to $2,600 by 2029, estimating that approximately 90% of Tesla’s enterprise value and earnings in 2029 will be derived from the robotaxi business.
In addition, Deutsche Bank named Tesla as one of its top picks for 2025, citing its dominance in autonomous driving technology and its resilience against industry challenges. Deutsche Bank raised its price target on the stock to $370 from $295. Following a meeting with Tesla’s head of investor relations, Deutsche Bank noted that the company plans to launch its robotaxi service with a company-owned fleet supported by human teleoperators for safety.
“Tesla believes it would be reasonable to assume some type of teleoperator would be needed at least initially for safety/redundancy purposes,” the bank said in the note.
With the Trump administration expected to relax regulations surrounding autonomous vehicles, this could serve as a major tailwind for Tesla, especially considering that the company has recently faced significant regulatory challenges.
Optimus Humanoid Robot Starts to Catch Analysts’ Attention
Recent analyst notes increasingly highlight the potential upside of the Optimus business. The Tesla Optimus robot is a humanoid machine capable of walking on two legs and interacting with the environment using its arms and hands. Optimus is designed to automate tasks in manufacturing, logistics, and household chores, aiming to alleviate labor shortages and enhance workplace safety. The Tesla chief anticipates that the robot’s cost could range from $25,000 to $30,000 when produced at scale.
Tesla posted a video on X on Monday, showcasing the Optimus robot walking up and down several mulch-covered hills. Musk pointed out in his post that the robot is capable of walking on highly variable ground by using neural networks to control each limb, rather than being controlled via teleoperation. Tesla’s Vice President of Optimus Engineering, Milan Kovac, reposted the video, noting that the robot was technically blind, meaning it maintained its balance without using visual inputs.
During the Q3 earnings call, Musk highlighted significant enhancements in the movement dexterity of the Optimus humanoid and expressed confidence in scaling up to high-volume production. The Tesla chief anticipates that the robot’s cost could range from $25,000 to $30,000 when produced at scale. Musk added that he believes Optimus will ultimately become the most valuable product ever created. Notably, X Prize Foundation Chairman Peter Diamandis stated that Tesla’s Optimus is poised to revolutionize industries such as logistics and agriculture.
As previously noted, Tesla aims to deploy 1,000 Optimus robots by the end of 2025, primarily within its manufacturing facilities. BofA’s Murphy believes that as more robots are put into use, their training is expected to progress more quickly. Furthermore, the analyst anticipates that as the robotaxi technology matures, more resources will become available for Optimus.
“This will drive an acceleration in the capabilities of Optimus, and ultimately lead to increased production in 2026+, thereby helping drive costs down,” Murphy wrote.
How Did Tesla Perform in Q3?
On Oct. 24, Tesla stock rallied nearly 22% following the release of its Q3 earnings report. The favorable response was triggered by the company ending a streak of missed EPS estimates in its last four quarterly reports, impressing investors with its margins, and reaffirming its commitment to making an affordable EV model.
Its total revenue rose 7.8% year-over-year to $25.18 billion, driven by the Automotive and Energy Generation segments, though Q3 revenue missed Wall Street's expectations by $490 million. Still, the company reported an adjusted EPS of $0.72, beating expectations by $0.12. The beat was attributed to efficiency gains that led to an expansion in margins.
Notably, the automotive ex-credits gross margin rate reached 17.1%, comfortably surpassing the consensus estimate of 15.1%. The operating margin was reported at 10.8% of sales, an improvement from last quarter’s 6.3% and above last year’s 7.6%. Additionally, its production rebounded sharply, with 469,796 EVs built, marking a 9% increase, while deliveries rose by 6%.
Another bright spot was Tesla’s energy division. Energy generation and storage revenues grew 52% year-over-year to $2.38 billion, fueled by higher deployments of Megapacks and Powerwalls, presenting a promising diversification opportunity beyond its core EV market.
Finally, during the earnings call, Musk stated that Tesla plans to produce more affordable models in the first half of 2025. He anticipates a 20% to 30% increase in vehicle production in 2025. With that, the anticipated release of the budget Model Q early next year could be another strong catalyst for the stock. This sub-$30,000 vehicle, after-tax credits, is expected to greatly broaden Tesla’s market reach and compete with top-selling vehicles such as the Toyota (TM) Corolla. As a result, this model has the potential to become a significant contributor to the company’s profits if it is scaled up as quickly as Model Y.
TSLA Valuation and Analysts’ Estimates
Analysts tracking Tesla anticipate that the company’s adjusted EPS will drop 20.39% year-over-year to $2.48 in fiscal 2024. However, this trend is expected to reverse in FY25, with the company's adjusted EPS projected to increase to $3.27. Analysts expect TSLA’s revenue to increase by 3.15% year-over-year to $99.82 billion in FY24.
From a valuation perspective, TSLA stock is quite expensive at current levels. The stock’s forward non-GAAP P/E multiple stands at 161.57x, significantly higher than the sector median of 18.01x and its five-year average of 114.17x. However, it should be noted that the company’s exposure to several large and rapidly growing industries helps to justify its premium valuation, to some extent.
What Do Analysts Expect For TSLA Stock?
Despite TSLA’s solid long-term growth prospects, analysts maintain a cautiously optimistic stance on the stock, as reflected in a consensus “Hold” rating. Out of the 38 analysts covering the stock, 11 recommend a “Strong Buy,” two give it a “Moderate Buy” rating, 16 rate it as a “Hold,” and the remaining nine recommend a “Strong Sell.” Notably, TSLA stock trades at a premium even to the Street-high target price of $411.00.
The Bottom Line on TSLA Stock
Putting it all together, I believe that TSLA is a high-quality growth stock with multiple catalysts heading into 2025. Nonetheless, its valuation continues to be a major concern for me, which is why I think it would be prudent to closely monitor developments related to its robotaxi, Optimus, and Model Q. I recommend taking advantage of any dips in the stock price to start building a new position, or add to an existing one.
