Tesla Stock Hits a New Record: What History Tells Us About the Future

After a prolonged wait of 1,133 days, Tesla shares have surged to a new high, closing at $424.77 on Wednesday, surpassing the previous split-adjusted high of $409.97 achieved on November 4, 2021. The day saw shares trading as high as $424.88, breaking past the prior intraday high of $414.50. The rally has caught both investors and Wall Street off guard, with the stock increasing approximately 69% or $173 per share since the November 5 election, which has contributed around $555 billion to Tesla’s market value. As a result, Wall Street has raised target prices on average by about $40 per share, showcasing the challenge analysts face in keeping pace with Tesla’s rapid ascension.

Tesla’s market capitalization has soared, currently exceeding $1.3 trillion, which is over $100 billion more than the high recorded in 2021. This increase is remarkable, especially considering that there are around 150 million more shares outstanding today compared to then. However, the current optimism rings in stark contrast to the stock’s performance following the 2021 peak.

The Downward Spiral Following Previous Highs

Tesla shares suffered a significant downturn after reaching the November 2021 high. Just three months later, the stock had plummeted nearly 28%, dropping from around $410 to $291. By the end of the following year, shares were down almost 50%, hovering around $207. Such a trend raises concerns among investors who may wonder if a similar fate awaits following this latest record.

Diving Into Valuations

Currently, Tesla shares trade at roughly 125 times estimated earnings for 2025. This high valuation is not unprecedented, as shares have previously enjoyed similar pricing in January 2022 and January 2021, among other instances in 2020. However, performance post-high typically bears a resemblance to what occurred after the November 2021 peak, with shares declining by around two-thirds within a year.

In contrast, Tesla flourished following the peaks of 2020 and 2021, showcasing remarkable gains of over 740% in 2020 and an additional 50% in 2021. As highlighted by Gary Black, co-founder of the Future Fund Active ETF and a Tesla shareholder, Tesla was trading at approximately 145 times its current year earnings in early 2022. Given Black’s adjusted earnings estimate of $3.30 for 2025, he suggests that Tesla shares could potentially reach $480. While he admits he is not advocating for Tesla should be valued at that level outright, he states that such a price-to-earnings ratio isn’t irrational if investors foresee significant advancements, like the rollout of unsupervised self-driving technology.

Looking Ahead: What Could Influence Tesla’s Stock Price?

In addition to new models, Tesla has plans to introduce a self-driving robotaxi service by late 2025, which could significantly influence its stock performance. However, analyses related to price-to-earnings ratios yield mixed results. It is essential to recognize that past performance does not guarantee future success; every situation is contextual and subject to fluctuations influenced by an array of factors. For instance, various external pressures such as CEO Elon Musk’s acquisition of Twitter—now renamed X—have previously played a role in dictating Tesla’s stock performance.

Despite rapid growth in sales volumes during 2022 and 2023, Tesla has encountered challenges, including a decline in electric vehicle prices driven by rising interest rates and intensified competition. Analysts originally anticipated Tesla’s earnings to be around $5 per share in 2023; however, the reality panned out to be slightly over $3 per share. Such miscalculations illustrate that earnings—and investor expectations surrounding them—are core drivers of stock prices.

The Road Ahead For Tesla

Current estimates indicate that investors expect Tesla to earn approximately $4.25 per share by 2026. The trajectory of this estimate is likely to be a critical determining factor affecting the stock’s performance in 2025. Incorporating the introduction of Tesla’s new lower-priced models and the anticipated robotaxi service could create favorable momentum for these estimates.

Nevertheless, as the market evolves, investors will inevitably grapple with the question of how much premium they are willing to pay for Tesla’s earnings—a debate that remains ever-present in the world of investing.

In conclusion, while Tesla’s records are impressive, historical patterns and current market dynamics indicate that caution is warranted. The path forward will be shaped by a mix of innovations, earnings trajectories, and broader market conditions. Only time will tell how these factors will interact to influence Tesla’s stock price in the months and years ahead.