Is Tesla Stock Going to $265? 1 Wall Street Analyst Thinks So.

Tesla (TSLA 0.23%) stock is down 21% in the first half of 2024 amid falling automotive revenue. But the stock is up 17% since the release of its first-quarter earnings report, and Wall Street analysts are starting to look ahead to potentially improving demand in the near term.

Stifel initiated coverage of the stock with a buy rating and a price target of $265, representing upside of 35% from the current share price of $195.55. The firm bases its price target on the expectation that the updated Model 3 and Model Y should see strong demand and return the company to growth.

Is Tesla stock a buy?

With competition increasing in the electric car market, Tesla is working to drive down the costs of its vehicles to maintain healthy demand. Increasing mass adoption of its cars has been a long-term goal of the company, but the recent spike in interest rates made this a more urgent need to keep automotive revenue growing. After reporting a 15% increase in auto revenue in 2023, Tesla reported a 13% year-over-year decline in the first quarter.

Tesla's focus this year involves transitioning to its next-generation manufacturing system, which contributes to its lower vehicle deliveries. However, the new process is designed to speed up production to make more vehicles at a more affordable price to the consumer.

Stifel expects Tesla to return to robust growth in 2025 and beyond. But the firm also sees increasing revenue contribution from Tesla's artificial intelligence (AI)-based self-driving car software, which would boost Tesla's revenue and profit margin, and therefore significantly increase the value of the business.

History says the best time to bet on Tesla is when expectations are low. Opportunities in AI software and other new products may not be fully reflected in the stock's valuation.

Tesla stock peaked at $414 in late 2021, so a move toward the analyst's price target is certainly possible. The stock should move higher if the business starts to see growing profits following the transition to the next-generation production system.