Tesla: Dismantling the 2025 Bear Case (Debunking 5 Myths)

Tesla: The Ultimate Battleground StockZacks Rank #2 (Buy) stock Tesla (TSLA) became the first successful U.S. automotive startup in over a century and the first to achieve widescale adoption in the electric vehicle (EV) industry. Though Elon Musk and Tesla deserve credit for popularizing the EV, they did not invent it. The movie “Who Killed the Electric Car?” profiles the limited commercialization and downfall of early EVs. Nevertheless, the Tesla teams’ vision to unveil a cool and high-performance EV at scale has propelled Tesla CEO Elon Musk to become the wealthiest man on Earth. However, with some of his antics, like his “Funding Secured” tweet, smoking marijuana on the world’s most popular podcast (The Joe Rogan Experience), and his unique and overall eccentric behavior, Musk has garnered his fair share of haters and doubters over the years, including the likes of Microsoft (MSFT) founder Bill Gates, CNBC’s Jim Cramer, and renowned short seller Jim Chanos.The fact and the matter is that Tesla is and will always be one of the biggest battleground stocks on Wall Street. Investors either hate or love Musk and, as a result, have strong feelings about the stock.  Having said that, savvy investors understand the significance of ignoring emotions and looking at the facts. Today, I will divulge five common bearish myths about Tesla and use data and numbers (not emotion) to examine why they are wrong.“Tesla’s Relative Stock Performance is Poor”A common bearish argument that I hear is that TSLA is not worth owning because it has underperformed competitors such as General Motors (GM) and fellow “Magnificent 7” stocks like Microsoft and Meta Platforms (META). These investors go wrong because they fail to account for time frame context, which is critical when sizing up relative price performance. Bears will argue that TSLA is weak because it has failed to print a fresh high since late 2021. However, over the past decade, TSLA has trounced GM to the tune of 1500% to 115%.Image Source: Zacks Investment ResearchAnother factor to consider is price digestion. After TSLA soared from a split-adjusted $1.79 to $17.67 in 2012-2014, the stock consolidated those gains for 5 years before again surging in 2019 and 2020 from $14 to $400. In other words, price consolidations are common after monumental price moves.“Tesla Depends on Government Handouts”Like other clean energy stocks, Tesla has been a beneficiary of government subsidies. That said, the idea that Tesla is entirely dependent on these subsidies and would go bankrupt without them is a farce that the company proved in the recent quarterly earnings report. Though regulatory credit revenue sunk 17% quarter-over-quarter, Tesla still beat earnings expectations by a wide margin due to decreased cost of goods sold (COGS). Even with fewer subsidies, Tesla’s COGS per vehicle dropped to its lowest level ever ($35.1k). Tesla smashed Zacks Consensus Estimates in the recent quarter by 24.14%.Image Source: Zacks Investment ResearchElon Musk’s Politics Will Deter Prospective Tesla BuyersIf there’s anything more controversial than Elon Musk, it’s U.S. presidential candidate Donald Trump. During this election cycle, Elon Musk is strongly supporting Trump and campaigning for him in battleground states like Pennsylvania. Bears have speculated that the support of the republican candidate will deter left-leaning customers from buying cars. However, the data says otherwise. Tesla guided auto growth to 25% in 2025, smashing Wall Street expectations. Wall Street analysts expect TSLA EPS growth of 33% in 2025. Though a handful of people may boycott the company due to Elon’s politics, the issue is not systemic. Further evidence against the bear case is that Tesla’s new Cybertruck model is already the third-best-selling EV in America.Waymo Will Win the Cybertaxi WarsAlphabet’s (GOOGL) Waymo cybertaxi service has a leg up on Tesla’s because it has been greenlighted in some major U.S. cities like San Fransisco and is in service, while Tesla still hasn’t gone live. Nonetheless, being the first to market is not enough to win the battle. Tesla has a massive edge when it comes to training their Full Self Driving model. As a result, Tesla expects that FSD will be safer than a human driver (< 1 accident reported every 550k miles traveled). Furthermore, Tesla is far more scalable than Waymo because it doesn’t rely on super expensive lidar sensors like Waymo. Though I see both companies ultimately succeeding, skeptics are very wrong to assume that Waymo will run away with cybertaxi supremacy just because they launched first.Tesla is Expensive from a Valuation PerspectiveThe high valuation argument is the most puzzling to me of all the arguments. Even if you discount Tesla and Wall Street’s rosy growth expectations (higher growth tends to demand a higher valuation), Tesla’s price-to-book value aligns with where it was in 2020 before the stock quintupled.Image Source: Zacks Investment ResearchBottom Line Tesla is one of the biggest battleground stocks on Wall Street. However, details from its third-quarter earnings report suggest that bears are on the wrong side of the trade.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 228 positions with double- and triple-digit gains in 2023 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT): Free Stock Analysis Report General Motors Company (GM): Free Stock Analysis Report Tesla, Inc. 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