Is Tesla (TSLA) Stock Worth Buying The Dip? What Analysts Are Saying

Forbes

2 days ago

Tesla is struggling against declining demand for its cars, falling profitability and the tarnished ... More reputation of its leader.
Tesla has been a solid growth stock for years, delivering 10-year average returns over 35%—albeit with extreme volatility along the way. The stock's 2025 pullback could be another temporary dip, or it could signal a less profitable future for the EV maker. Let's review the key details, including financial performance and what analysts say, to determine if it's time to buy the dip on TSLA.
At the end of May, Tesla's stock price is up 100% over the past 12 months but down about 11.6% year-to-date. TSLA peaked this year above $420 in mid-January, before falling below $215 in early April. Since that trough, the stock has made a rough climb upward to its current trading price of about $358.
The first step in deciding whether to buy the dip on Tesla is understanding the company's fundamentals. You can get a sense of how the company performs by analyzing vehicle delivery reports, revenue composition and trends, margins, earnings and free cash flow.
Tesla reports delivered and produced vehicles after the close of each quarter. Deliveries are cars transferred to customers, for which Tesla has recognized revenue. Production units are cars manufactured in the quarter. The report breaks out the data for Models 3 and Y in one line and all other models in a second line.
These numbers are watched closely because they provide a first look at Tesla's quarterly vehicle revenue and manufacturing activity. Sometimes the report includes commentary on relevant factors such as production downtime.
Tesla reports three revenue segments: automotive, energy generation/storage and services/other. Over the last year, the composition of revenue by segment was:
Automotive revenues come from vehicle sales, leases and the sale of regulatory tax credits to other manufacturers. Tesla receives the credits free and resells them, which provides a nice revenue and profit boost. The resulting revenue is significant, totaling $595 million in the first quarter 2025. Notably, Tesla's net income in the quarter was $409 million, so the regulatory credit revenue essentially kept the company from posting a loss.
Looking more broadly, Tesla's total revenue in the first quarter declined from the prior-year period, primarily due to lower auto sales. Energy and services revenues increased on a year-over-year basis.
In 2021 and 2022, Tesla enjoyed a higher-than-average operating margin for an automaker. The double-digit margin gave Tesla the freedom to cut its car prices to protect market share. The strong profitability also partly supported Tesla's high valuation relative to its car-making peers.
Recent earnings reports show the big margin may be slipping away. Tesla's first-quarter 2025 operating margin was 2.1%, versus 5.5% in the prior-year period. For the trailing 12 months (TTM), the margin was 7.29%. For context, Ford's TTM operating margin was 2.40% and GM's was 6.54%.
Tesla has been profitable since 2020 when it reported GAAP EPS of $0.21. By 2023, the EV maker had grown its EPS to $4.30. The next year, earnings fell significantly to $2.04.
Tesla's first quarter 2025 non-GAAP EPS was $0.27, down 40% from the prior-year period.
Between 2021 and 2024, Tesla produced between $3.5 billion and $7.5 billion in free cash flow annually. 2024 was the lowest free cash flow year in that span. The downturn was related to an inventory increase and high-dollar AI investments in the first quarter.
Tesla's first quarter 2025 free cash flow was $664 million. This compared very favorably to the negative $2.5 billion in free cash flow posted in the first quarter 2024.
Several factors have contributed to TSLA's 2025 dip, including:
Marketbeat.com reports 41 analyst ratings for Tesla, broken down as:
The consensus price target is $293.97, which is about 18% below the stock's current trading price of $358. The highest price target is $500, and the lowest is $19.05. If you remove both of those extremes, the average price target is still less than $300.
Here's what it comes down to: Those who believe in Tesla project a 12-month stock price between $350 and $450. Another group of analysts who think Tesla is fairly priced in the $150 to $275 range.
Buying the dip means investing in a stock when the price is temporarily low. The rationale is that a lower buy-in price reduces downside and increases profits—that is, assuming the stock will rebound. It's like buying a stock on sale.
This practice is possible because investors tend to overreact. A negative headline or two can send a stock price tumbling, even when the company's fundamentals are unchanged. Identifying these oversold situations can prove beneficial for your bottom line.
To demonstrate, let's say Tesla ends the year at $395 per share. If you buy the dip at $358, your position will be up about 10% at year-end. If you wait until Tesla rebounds to $390—where it started the year—your year-end unrealized gain is much lower at 1.3%.
The risk of buying the dip is that the expected stock price rebound will never materialize. Existing or new problems for Tesla could hold the stock price lower. Potential issues include:
Any one of these could push investors and analysts to reset their outlooks on Tesla. The reset could be temporary or longer-term, depending on the underlying circumstances.
You may want to buy the dip on Tesla if all the following are true:
Bottom Line
Tesla is struggling against declining demand for its cars, falling profitability and the tarnished reputation of its leader. U.S. policy changes may also force the company to manage its domestic EV and energy businesses without the benefit of tax credits for itself and its customers. That could spell a rocky future, at least until Tesla finds a sure and profitable path in AI-driven autonomous vehicles.
Buy the dip on Tesla only if you can handle surprises and an uncertain future. If you can't, consider sitting this one out. For other investing ideas, see best stocks for 2025.