Tesla Inc. is facing a year of mixed fortunes as Wall Street analysts predict lower vehicle sales growth while analysts shift their focus to the company’s ambitious pivot into artificial intelligence (AI).
The electric vehicle (EV) giant is expected to sell 2.07 million vehicles in 2025, according to analyst forecasts compiled by FactSet.
This would mean a 16% increase over the previous year but far below the 20-30% growth forecasted by CEO Elon Musk last October.
This marks a significant slowdown compared to Tesla’s historical growth trajectory, which averaged 40% annually in previous years.
The challenges Tesla faces are compounded by political and economic factors, including the return of Donald Trump to the White House.
Trump’s administration has signalled plans to dismantle Biden-era policies that boosted EV adoption in the US, putting Tesla and other automakers in a precarious position.
Analysts suggest that Tesla’s pivot toward AI and autonomous driving technology may offset these challenges and position the company for long-term growth.
US EV sales face headwinds amid policy uncertainty
Tesla’s expected 16% sales growth for 2025 may be overshadowed by political developments in the US.
Trump’s administration has already issued an executive order to review EV-related subsidies, including the $7,500 tax credit that has significantly supported Tesla’s domestic sales.
Analysts estimate that approximately two-thirds of Tesla’s US sales rely on these incentives. Should these subsidies be rolled back, Tesla’s cost advantage in the EV market could be eroded, putting downward pressure on future sales.
The broader US EV market experienced stagnation in 2024, with market share growing only marginally to 8% from 7.6% in 2023. High prices and a lack of affordable new models have limited consumer adoption.
Tesla’s decision to scrap plans for a $25,000 EV, previously dubbed “Model 2,” has left analysts questioning the company’s ability to attract price-sensitive buyers, particularly as competitors introduce cheaper alternatives.
International markets are no less challenging. In Europe, Tesla’s EV sales fell 13% year-on-year in 2024, with industry observers citing an ageing product lineup and intensifying competition.
Meanwhile, Tesla’s position in China, its second-largest market, remains uncertain amid geopolitical tensions and Trump’s aggressive trade policies.
AI and autonomy
While Tesla’s core vehicle business may face headwinds, analysts are increasingly bullish on the company’s AI ambitions. Musk’s vision of a fleet of autonomous robotaxis is taking shape as Tesla accelerates its investments in AI software and hardware.
Analysts believe that Tesla’s AI-driven revenue streams could soon eclipse its traditional car sales.
Tesla’s foray into AI extends beyond vehicles. The company is developing a humanoid robot, which Musk claims will become the “biggest product ever of any kind.”
Although details remain scarce, Tesla’s AI ventures are expected to unlock significant value, with analysts projecting a potential market capitalisation of $25 trillion in the long term, up from the current $1.3 trillion.
Tesla’s challenges in 2025
Tesla’s ageing portfolio of EVs remains a concern for both investors and consumers. The Cybertruck, Tesla’s first new model since the Model Y in 2020, has yet to deliver significant volume, with quarterly sales estimated between 9,000 and 12,000 units.
Although Tesla plans to revamp the Model Y this year, the absence of a truly affordable model continues to limit its market reach.
The company has hinted at a potential new model, speculated to be an affordable “Model 2.5,” which could boost Tesla’s sales in the second half of 2025.
However, analysts caution that delays in launching such a vehicle could further erode Tesla’s competitive advantage, particularly as traditional automakers and EV startups ramp up their offerings.
Earlier this month, Bank of America advised investors to reduce their exposure to Tesla, with analyst John Murphy downgrading the stock from a “buy” to “neutral.” Despite the downgrade, Murphy raised his price target for Tesla to ₹490, representing a potential upside of 19.2%.
However, Murphy did list multiple scenarios that could act as a catalyst for the stock.
He cited several factors, including the introduction of a low-cost model in the first half of 2025 and another new model in the second half, both seen as key drivers of volume growth.
Additional catalysts include the mid-2025 launch of Tesla’s robotaxi, the ramp-up of Megapack production at the Shanghai assembly plant starting in the first quarter of 2025, and updates on the adoption of Tesla’s full self-driving subscription service.
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