Will Musk’s Focus and Robotaxi Hype Drive Tesla’s Next Rally?

Tesla stock (NASDAQ:TSLA) has gained close to 20% over the past month. This rally is partly driven by a broader market upswing, but a more crucial factor has been CEO Elon Musk’s renewed focus on Tesla after exiting his government advisory role. Here’s a closer look at what’s driving the Tesla rally.

Tesla Back As Musk’s Primary Focus

Elon Musk officially stepped down from his role as a special government employee at the Department of Government Efficiency (DOGE) last week. This departure frees him up to focus more fully on Tesla’s current challenges. Tesla has experienced a decline in both deliveries and profitability in recent quarters, while its highly anticipated Cybertruck pickup appears to be a dud. Musk’s renewed attention to Tesla will also help the company pursue its longer-term vision, including ambitious projects like humanoid robots.  Now, although Musk has stepped back from his government role, his relationship with the President appears to remain cordial, and his influence within the Trump Administration is expected to stay strong based on recent developments.  For example, some of Musk’s allies have been appointed to lead NASA and the Air Force, two critical clients for his SpaceX venture. Additionally, following President Trump’s recent visit, Saudi Arabian officials indicated that Tesla’s robotaxis could be introduced in the kingdom. Musk’s increasing presence within Tesla, along with his continued influence and access to key policymakers, should be a big positive for the stock.

Robotaxis

Tesla is likely to launch its robotaxi service in Austin, Texas, later this month, kicking off what could be a sizable new business. The ride-hailing market is already enormous, and we’ve previously estimated that the autonomous ride-hailing market might be even bigger – a $750 billion autonomous ride-hailing market isn’t far-fetched! See how ride-hailing can drive Tesla stock to $1500. Tesla controls the entire stack – it builds the EVs, develops the software, and operates the charging network. It also has a large fleet of vehicles already on the road that can quickly be converted into robotaxis, giving it a significant head start in scaling compared to competitors. To be sure, Tesla will be playing catch-up with Google’s Waymo, which has offered autonomous rides in multiple cities for quite a few years now. But Waymo’s business model requires owning its vehicles and investing heavily in retrofitting and fleet management, leading to high operating costs. After all these years, Waymo remains unprofitable and loses money on every ride it delivers. The superior economics and control over the entire ecosystem could give Tesla an edge in the robo-taxi market.

Tesla Stock’s Volatility

The increase in TSLA stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 50% in 2021, -65% in 2022, 102% in 2023, and 63% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, and less of a roller-coaster ride, as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could TSLA face a similar situation as it did in 2022 and underperform the S&P over the next 12 months, or will it see a strong jump?

While Musk’s return and the impending robotaxi launch are certainly positive for the stock, Tesla’s core automotive business is struggling. Competition in the EV market is heating up with Chinese EV players gaining ground in international markets, while Tesla’s weakening brand image, sharply declining resale values, and saturation of early adopters in the EV market are hurting sales. Tesla’s valuation after the recent rally is not exactly cheap. The stock trades at a lofty 180x consensus 2025 earnings, and it might take quite a bit of time for the company to grow into this rich valuation. See our analysis on Tesla Valuation: Is TSLA Stock Expensive Or Cheap? for more details on Tesla’s valuation and how it compares with peers. For more information on Tesla’s business model and revenue trends, check out our dashboard on Tesla Revenue: How Does TSLA Make Money?

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