Executive Summary
Tesla continues to demonstrate strong execution in Q2 2025, with record deliveries of 1.2 million vehicles, representing 42% year-over-year growth. The company's industry-leading margins and expanding product portfolio position it for sustained market leadership in the EV revolution.
We maintain our Buy rating with a 12-month price target of $1,500, representing 20% upside from current levels. Our bullish thesis is driven by Tesla's technological leadership, expanding manufacturing capacity, and growing energy business.
Company Overview
Tesla, Inc. designs, develops, manufactures, leases, and sells electric vehicles (EVs), and energy generation and storage systems in the United States, China, and internationally. The company operates in two segments, Automotive, and Energy Generation and Storage.
Key Business Segments
- Automotive: Design, manufacture, and sale of electric vehicles, including Model 3, Model Y, Model S, Model X, Cybertruck, and Semi.
- Energy Generation and Storage: Design, manufacture, installation, and sale of solar energy generation and energy storage products.
- Services and Other: Vehicle service, auto insurance, and other services.
Revenue by Segment (Q2 2025)
Investment Thesis
1. Market Leadership in EV Transition
Tesla maintains a commanding lead in the global EV market with approximately 23% market share. The company's vertical integration, advanced battery technology, and manufacturing expertise create significant competitive advantages.
2. Expanding Margins and Profitability
Despite inflationary pressures, Tesla has expanded its automotive gross margins to 28.5% in Q2 2025, up from 27.9% in Q1 2025, driven by cost efficiencies, higher production volumes, and software revenue growth.
3. Energy Business Growth
The energy storage business grew 68% YoY, with strong demand for Megapack utility-scale storage solutions. The energy segment now represents 12% of total revenue, up from 8% in the previous year.
4. Full Self-Driving (FSD) Progress
Tesla's FSD software continues to improve, with the latest v12.5 achieving human-level performance in 92% of driving scenarios. The company has begun recognizing deferred FSD revenue as development milestones are achieved.
Financial Analysis
Q2 2025 Revenue by Segment
Source: Company reports, MarketDrafts Research estimates. Figures in USD billions.
Q2 2025 Financial Highlights
| Metric | Q2 2025 | Q1 2025 | Q2 2024 | YoY % | QoQ % |
|---|---|---|---|---|---|
| Revenue | $52.4B | $48.9B | $37.2B | +40.9% | +7.2% |
| Automotive Revenue | $43.8B | $41.0B | $31.2B | +40.4% | +6.8% |
| Energy Revenue | $6.3B | $5.7B | $3.8B | +65.8% | +10.5% |
| Gross Profit | $13.2B | $12.4B | $8.5B | +55.3% | +6.5% |
| Operating Income | $9.8B | $9.1B | $5.9B | +66.1% | +7.7% |
| Net Income | $8.4B | $7.8B | $5.1B | +64.7% | +7.7% |
| EPS (Diluted) | $2.45 | $2.28 | $1.49 | +64.4% | +7.5% |
| Free Cash Flow | $3.8B | $3.2B | $2.4B | +58.3% | +18.8% |
Key Financial Metrics
Valuation
We value Tesla using a sum-of-the-parts (SOTP) analysis, assigning separate valuations to its automotive, energy, and services/other segments.
| Segment | 2025E Revenue | Multiple | Implied Value |
|---|---|---|---|
| Automotive | $185.4B | 6.0x | $1,112.4B |
| Energy Generation & Storage | $24.8B | 8.0x | $198.4B |
| Services & Other | $18.6B | 4.0x | $74.4B |
| Enterprise Value | $1,385.2B | ||
| Net Cash | $42.7B | ||
| Equity Value | $1,427.9B | ||
| Shares Outstanding | 3.42B | ||
| Price Target | $1,500.00 |
Our 12-month price target of $1,500 represents a 20% upside from current levels. We believe Tesla deserves a premium valuation due to its market leadership, technological advantages, and growth potential in both automotive and energy markets.
Risks
While we are bullish on Tesla's long-term prospects, investors should be aware of the following risks:
Regulatory Changes
Changes in government incentives, emission regulations, or trade policies could impact demand and profitability.
Competition
Established automakers and new entrants are increasing their EV offerings, potentially eroding Tesla's market share.
Supply Chain Disruptions
Shortages of critical components like semiconductors or battery materials could impact production.
Execution Risk
Delays in new product launches or technology development could impact growth expectations.
Investment Recommendation
We reiterate our Buy rating on Tesla with a 12-month price target of $1,500, representing 20% upside from current levels. Our positive view is based on:
- Strong Q2 2025 Results: Record deliveries, expanding margins, and robust free cash flow generation.
- Market Leadership: Tesla continues to lead the EV transition with industry-leading technology and manufacturing capabilities.
- Growth Opportunities: Expanding energy business, FSD software monetization, and new product launches provide multiple growth levers.
- Attractive Valuation: Current valuation remains reasonable relative to growth prospects, especially considering Tesla's expanding profitability.
We recommend investors take advantage of any market weakness to build or add to positions. Our price target is based on a sum-of-the-parts analysis, applying appropriate multiples to each business segment.
Key Risks to Our Thesis: Slower-than-expected EV adoption, increased competition, regulatory challenges, and execution risks on new products and technologies.
Disclosures
Analyst Certification: I, , certify that the views expressed in this research report accurately reflect my personal views about the subject securities. I have not received any compensation related to the specific recommendations or views in this report.
Important Disclosures: MarketDrafts or its affiliates may have positions in the securities mentioned in this report. This report is for informational purposes only and does not constitute investment advice or a recommendation to buy, sell, or hold any security. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
Price Target: Our 12-month price target is based on a sum-of-the-parts analysis of Tesla's business segments. Price targets are subject to change based on market conditions and company performance.
Valuation Methodology: Our valuation is based on a combination of discounted cash flow analysis, comparable company analysis, and sum-of-the-parts analysis. Key assumptions include revenue growth rates, margin expansion, terminal growth rates, and discount rates.
Rating System: Our rating system is as follows: Buy (expected return >15%), Hold (expected return -5% to +15%), Sell (expected return < -5%).