Where will Tesla be in 5 years?

adze (TSLA 3.91%) took its investors on a volatile ride. The stock is currently trading 36% off its peak price. But over the past five years, they have crushed the market, growing 1,520% more. This would have turned an initial capital outlay of $10,000 into $162,000 today.

The Elon Musk-led venture has recently seen a strong push from the investment community. This electric vehicle (EV) stock. up 84% since the end of April. But investing should be a long-term game. With this frame of mind, where will Tesla be in five years?

Tesla’s past

Tesla has been known in the past for experiencing rapid growth. The impressive top-line gains came on the back of strong interest in its range of electric vehicles. In addition, the company’s premium pricing and manufacturing cost advantages have led to increased profitability.

But in the last two years, this favorable context has changed. Higher interest rates make buying a Tesla car less affordable for consumers because their monthly payments are higher. That backdrop is a headwind that led to revenue growth of just 3% in the fourth quarter of last year, before another 3% increase in the first six months of this year.

Adding to the worries is intense competition. Old car manufacturers are developing their own electric vehicles. And in China, where electric vehicle penetration is well ahead of the US, there are lower-cost options that customers are flocking to. Tesla has had to cut prices several times to stay competitive, which has crushed margins.

No wonder the stock is trading 36% below its all-time high, a milestone that was reached at the end of 2021. bull market in November.

The future of Tesla

Even after Tesla’s price drop, I still think the stock is expensive. Shares are traded at a price-earnings ratio The ratio (P/E) of 73. Over the past five years, the P/E multiple averaged 312, so the current valuation could be compelling. I’m not convinced, though.

In my opinion, Tesla remains one story stock that is driven by the market’s continued faith in Elon Musk. Part of this has to do with the optionality of the company. Today, 78% of Tesla’s revenue comes from the sale of electric vehicles. But this could change in the future.

On October 10, Tesla will perform its highly anticipated activity robotaxi event. Here, Musk could outline a more detailed design for his cybercabins and the timing of development. And investors will be watching closely to find out when the business will finally be able to introduce self-driving technology (FSD). A discovery here could fundamentally change the company’s trajectory.

If Tesla can finally bring this technology to the masses, it could essentially create a global travel service similar to Uberhis. However, Tesla’s service would consist of all the autonomous vehicles it makes. For consumers, the cost of transportation would drop significantly. And for Tesla, the result could be a massive, high-margin revenue opportunity.

It is not clear how likely this is to actually happen. On the one hand, if Musk reveals information that impresses the market and provides much-needed clarity, then it could be a huge win for the stock.

But if history is any indication, Tesla’s founder and CEO has a track record of over-promising and under-delivering. And when it comes to FSD capabilities, there are still major regulatory and technical hurdles to clear. Furthermore, consumers may be far from being able to trust these cars in their daily lives.

Tesla is still a car maker, but these electric vehicles don’t stand out in the market like they once did. This reality should result in tempering investor expectations.

It is commendable what Tesla has achieved, completely disrupting the global automotive industry and driving advancements in electric vehicles. However, its current valuation is too rich for me, especially when you consider the current state of the business. And therefore I think this stock will underperform Nasdaq Composite Index in the next five years.