Shares of Tesla(NASDAQ: TSLA) have slumped during the past year over weakening sales growth and concerns over its profitability amid growing competition in the electric vehicle (EV) market.
However, Deutsche Bank analyst Ed Yu believes investors should take advantage of the dip. Yu resumed coverage of Tesla recently, rating the stock a buy and giving it a $295 price target -- about 30% above its current level. Here's why the analyst could be right.
Why buy Tesla stock
Tesla is planning to launch a more affordable model in the first half of 2025. This reflects the company's ability to drive down its manufacturing costs, an advantage that could go a long way toward further solidifying Tesla's lead in EVs.
Tesla stock has been weighed down by sluggish demand growth, but it reported a 15% quarter-over-quarter increase in deliveries in Q2, so demand seems to be improving. The company could be building momentum for another stretch of growth as it launches new models.
Most importantly, Yu sees Tesla as more of a technology platform than an automaker. It has made significant progress in artificial intelligence (AI) training using Nvidia chips. Tesla's lead in AI will differentiate it from other automakers over the long term.
In the near term, the one thing investors need to see for the stock to rebound is better top-line growth. Tesla stock looks expensive on every metric, but it's trading well within its past range on a price-to-sales basis, which means revenue growth will be the key to unlocking more gains for investors. If EV demand continues to improve and sales growth returns in 2025, the stock could climb toward Yu's price target within the next year.
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John Ballard has positions in Nvidia and Tesla. The Motley Fool has positions in and recommends Nvidia and Tesla. The Motley Fool has a disclosure policy.
