Tesla, Inc. (TSLA, Financial) is surely a roller coaster for the weak of the heart.

Despite the ups and downs in its stock price and some risks down the road, Tesla's long-term outlook remains intact. Its financial strength enables it to expand by investing in new technology. In fact, the company is working on some interesting prospects including but not limited to fully self-driving cars, robotaxis and humanoid robots.

Tesla's smart innovations have some serious potential to revolutionize industries. At the same time, its energy business is also booming as more and more homes and businesses are adopting battery storage to ensure reliable power.

That said, Tesla is way ahead in terms of valuation compared to its peers and to be honest, the stock is way too expensive. Speculation drives most of the company's current growth. The stock has already priced in a lot of future success and expectations are sky high. For now, it is be prudent to sit tight and see if Tesla can truly execute it's grand vision before jumping in.

Tesla's bets big for 2025

Tesla has essentially become a world in itself, and 2025 is about to be a year that defines its future. This is evident through its investments in areas including artificial intelligence (AI), self-driving technology and energy storage. It is doing so while managing vehicle margins via cost efficiencies. However, the amount of money spent on these innovations might become a barrier to short-term profitability.

TSLA stock jumped 92% last year between November and December. Since then, it has plummeted 38%, as a reminder that hype alone won't keep up growth.

Nonetheless, Tesla's robust track record is a testament that it has been resilient in the long haul. Its stock has multiplied more than 16 times in the past decade. This reinforces that it is capable enough to push boundaries. The real challenge now is to convert its vision into reality. Investors should allow it some time to fulfill its overly ambitious vision, before taking any major steps.

An AI empire beyond just cars: Tesla has injected almost $5 billion in AI and intends to continue the efforts. A significant advancement for the company is Cortex which is a 50,000 GPU training cluster. It will be used to speed up Tesla's neural networks as it nears true autonomy. In actual fact, Tesla intends to debut an unsupervised version of its Full Self-Driving in California this year. This means that no human driver would be required. Tesla already applied for a TCP Permit in November 2024 and has officially received approval from California (though this is the first approval in the series of approvals).

Moreover, the big moves for Tesla involve fully autonomous Cybercab and Robovan. Both were revealed in October last year by the company. It is still not sure whether they will operate on FSD or any new technology. Yet, I think that we are getting close to a major shift and it would be amazing if Tesla pulls it off and makes it mainstream. It would surely be a high margin, software driven business.

Unlike Lyft (LYFT, Financial) and Uber (UBER, Financial), which are still dependent on human drivers, Tesla's approach will remove that cost entirely. It means vehicles would operate non-stop and generate revenue around the clock.

Humanoids and the future of automation: Of course, there is Optimus. Tesla already has two Optimus humanoid robots working on its factory floor. Meanwhile, an improved version will be launched later this year. The Mass production of the technology is targeted to reach 10,000 units by 2025. Optimus is designed for use on both industrial and home fronts, with plans to bring costs down below $20,000 over time. Elon Musk believes that it has the potential to generate a staggering $10 trillion in the long run.

Source: Tesla Optimus (Company's Website)

Still, challenges remain. In the past, humanoid robots have constantly faced the problem of both flexibility and affordability. Tesla's AI expertise and production scale give it a real shot at making Optimus real in the coming years. So, even though Musk's vision of Optimus helping on Mars is a long way away, automation will be critical to the colonization of space.

Promising growth ahead, but supply challenges still loom: While car production remains the backbone of the business, energy is turning into a formidable growth engine. Tesla's energy division just completed 113% YOY revenue growth. Its revenue grew from $1.44 billion to $3.06 billion, thus surpassing $10 billion in total for 2024.

Energy storage is the real force behind this surge. Megapack's skyrocketing demand led to a record 11 gigawatt-hours deployment by Tesla in 2024. The Megapacks are manufactured at dedicated facilities known as Megafactory (Lathrop, CA, Shanghai, China, and Houston, TX in 2025). The target is around 100 GWh by 2026, and each Megafactory produces 40 GWh. The business expects at least 50% growth this year as demand for grid-scale storage solutions develops.

However, the battery supply constraints, indeed, continue to be a critical bottleneck for Tesla in 2025. At the same time, battery demand is outstripping supply as the company scales up production of Megapacks and next generation vehicles. That would be a handicap to Tesla as production growth can slowdown due to this. It can result in delays in major projects like CyberCab and Optimus.

Q4 Financial Performance & Outlook

The end of Q4 2024 brought Tesla both difficult situations and major developments. Revenue growth remained slow while costs mounted as the company maintained its forward momentum. Without further ado, let's get into the nitty-gritty.

Strong balance sheet and smart growth: The increase of assets at a faster rate than liabilities leads to higher equity. It is a positive sign for investors. Tesla maintains an impressive standing on its balance sheet report. It has a mind-boggling $37 billion in cash and marketable securities which creates a net cash balance of about $30 billion. This big reserve allows Tesla to constantly put efforts into pursuing its visionary initiatives.

But certainly, there is another important factor which is debt. Tesla has $8.2 billion in debt but only $4.3 billion of it is in the form of asset-backed notes. Instead of using its core business as the source of its liquidity, Tesla tapped its lease portfolio to issue debt. This made the company convert future lease payments into immediately available cash. As such, the lease cash flows fully support this debt and hence reduce financial strain.

Meanwhile, the retained earnings kept on growing. They rose 116% from 2022 to 2023 and 26% more in 2024. This leads to them being over $35 billion now. This is different from most companies that distribute profits to shareholders in the form of dividends or buybacks. This goes to show how Tesla is dedicated to reinvesting for lasting growth.

Takeaway? Tesla has ample cash reserves and a well-managed debt structure. It is also growing retained earnings to have the best financial stability and future expansion.

Growth Under Cost Pressures: Tesla's total revenue only grew 2% to $25.7 billion from $23.35 billion in Q4 2024. Meanwhile, it was up just 1% to $97.6 billion from $96.7 billion for the full year. Most of this sluggish growth was a result of a lower average selling price for the S3XY lineup and more attractive financing options to help keep demand. These strategies enhanced the unit sales but at the cost of squeezing margins. On the cost side, it was able to achieve all-time lows in the cost of goods sold (COGS) per vehicle, coming in at $35,000 in Q4 2024. That said, high operating expenses wiped this out since the company continued to pour hefty investments into AI and R&D projects. While these initiatives are important for long-term innovation, they also bring near-term pressure on profitability. In addition, a one-time charge of $624 million for restructuring further reduced earnings. It is pertinent to mention here that a $5.9 billion deferred tax asset benefit artificially inflated the company's net income in 2023. Thus, the YOY comparison would not be fair in this regard.

Spending big and building for the future: Tesla's net cash from operations has surged significantly over the past half-decade. Nevertheless, the growth in 2023 and 2024 has flatlined, mainly because of growing capital expenditures and inventory buildup. In the past 12 months, the company has been spending heavily on innovations already mentioned above. The spending has boomed from $1.3 billion in 2019 to $11.6 billion in 2025. These heavy investments have not hindered Tesla from producing a strong free cash flow of $3.6 billion in 2023 and $3.5 billion in 2024. Though this indicates a leveling off of cash generation. The positive aspect is that Tesla can sustain cash generation as costs go up. This stability implies that the company is in the early days of high burn growth, and is now moving into a more self-sustaining model. Meanwhile, Tesla is cutting debt and is heading toward financial stability instead of relying on external funding. Cutting cash from external funding is evident as net cash from financing decreased from $9.9 billion in 2020 to a mere $3.8 billion in 2024. This shift of capital represents increasing financial independence towards a long-term stable existence.

Additionally, Tesla has seen over $40 billion in proceeds from investments between 2022 and 2024. It is a significant surplus of cash. Such a large cash influx shows that Tesla does not solely rely on operating cash flow to fuel its aggressive expansion.

That said, the seemingly attractive financial figures do not show how timing elements fuel most of Tesla's operational cash flow growth. If things turn unfavorable in terms of working capital such as inventory accumulation or slower payments collection. It would have the potential to create strain on its future cash flow situation. Additionally, Tesla maintains significant investments in new battery facilities and gigafactories that drive net cash used for investing to stay high, especially during the fourth quarter. The trend of high capital expenditures will continue in the near term because its expansion activities depend on ongoing spending.

Valuation stretched, sentiment divided

The premium valuation of Tesla reflects a massive disconnect from its peers. TSLA stock trades at a significant premium to its tech and auto industry peers given its forward P/E of 98.89x. Microsoft (MSFT, Financial) and Apple (AAPL, Financial) trade at 29.46x and 27.89x respectively. With a strong leadership in AI, Nvidia (NVDA, Financial) trades at 24.45x. Despite strong fundamentals, Meta (META, Financial) trades at only 21.21x and Amazon (AMZN, Financial) trades at 28.85x. Last but not least, Alphabet (GOOGL, Financial) trades at a modest 17.74x, making it the most affordable stock in the group. It signals that Tesla is actually valued more like a high-growth tech company rather than a traditional automaker.

Source: TSLA Valuation Metrics (Author Generated Based on Data)

Subsequently, Tesla's potential for execution of what it is betting on will finally decide whether it was ever worth what it's been valued at. Tesla's success would lead to the company even outperforming Nvidia's AI level growth. However, accepting its premium pricing is valid for those who believe in its anticipated transformation.

TipRanks analysts anticipate an average target price of $305.93 for TSLA stock. It is a 21% upside from its current price. The Estimates vary widely from $120 to $465 which indicate the speculative potential of the stock. Tesla's expansion into energy, pushing AI, and self-driving are nice growth drivers to unlock plenty of value. However, the margins are still under pressure and the demand is still fluctuating.

Source: TipRanks Analysts' Average Price Target for TSLA

In my point of view, Tesla is a long-term growth story centered around AI, self-driving and energy expansion. Within a year, I expect Tesla to range between $280 and $320. Meanwhile, if full self-driving gets approved for regulatory use and energy storage scales faster than expected, the stock would be able to break through the $350 barrier.

Potential investors should exercise caution when investing at Tesla's current high market price because of existing uncertainties.

Mixed signals from insiders and gurus reinforce caution

Tesla remains a battleground stock, between not only retail investors, but also among guru investors and insiders. Latest guru trades display a split view. At the end of 2024, Ken Fisher (Trades, Portfolio), Jefferies Group (Trades, Portfolio), and Ray Dalio (Trades, Portfolio) all increased their TSLA positions, with Jefferies' position jumping to over a solid 1,700% to show strong belief in the story behind Tesla's innovation. However, leading investors such as Baillie Gifford (Trades, Portfolio), Cathie Wood, and Ron Baron (Trades, Portfolio) reduced their holding, presumably to cash in on the stock's quick spike. The divergence reflects other uncertainty around the company's short-term performance and long-term strategy, especially after geopolitical tensions and tariff shocks that knocked billions off its market cap in recent months.

The absence of insider activity, or the lack thereof, is what adds a note of caution. As it can be seen in the chart below, Tesla has not experienced a single insider buy in the past three years. On the contrary, about 61 million shares have been sold. The sheer volume and total lack of purchases raises questions. This may indicate that those closest to the business think the stock is fairly valued or even stretched at today's levels.

That said, Tesla is a long-term story, but this combination of guru hesitation and insider selling suggests that for now, investors are better off simply hanging onto any current position than jumping in and buying at the current levels. More prudent path right now would be waiting for greater clarity around margins, AI execution, and demand stabilization.

Your takeaway

The growth story of Tesla remains intact because the company continues advancing its AI systems and self-driving technology and energy sector expansion initiatives.

The current stock valuation requires you to exercise caution because multiple short-term uncertainties exist concerning future demands together with profit margins and operational execution. Tesla presents significant potential across several sectors but premium price points and conflicting signals between insiders and analysts suggest that one should hold the current positions at this time.

This article first appeared on GuruFocus.