Why Tesla stock is skyrocketing back to January highs

The EV stock has erased its YTD losses and is now up for the year.

It has been a wild year for Tesla (NASDAQ: TSLA), the leading manufacturer of electric vehicles (EVs).

A surge last year after the election of President Donald Trump saw Tesla stock skyrocket to around $490 per share in December, an all-time high. The positive sentiment stemmed in part from Tesla CEO Elon Musk’s involvement in Trump’s presidential campaign.

However, things began to turn south for Tesla stock for a few reasons. One, the massive surge made Tesla stock incredibly overvalued as the P/E ratio rose to over 100. At the same time, Tesla saw a 1% sales decline in 2024, marking the first annual decline in its history. Previously, Tesla had experienced huge sales growth, jumping 38% in 2023, 40% in 2022, and 87% in 2021.  

Also, the economy slowed in the first quarter with negative GDP and there was a growing backlash against Musk’s involvement in Trump’s Department of Government Efficiency. In addition, Trump ended the EV tax credits and rolled out higher tariffs, which had a significant impact on Tesla’s global supply chain and production costs.

It all led to a 13% sales decline year-over-year in the first half of the year, which in turn led to the stock price tanking. In mid-April, the share price had plummeted about 45% to a low of $223 per share and by June 30 it was still down 30% to $283 per share.

Big surge last week

Tesla stock clawed back some of the losses over the summer, but in the past few days it has gone into orbit, rising 20%, including another 3% rise on Monday. Tesla stock is now back up over $400 per share – sitting at $405 per share on Monday. It has climbed out of the red for the year and is now up about 3% YTD.

Why the recent rise? For starters, analysts are anticipating a sales increase in the third quarter. This is mainly due to expectations that sales will spike in Q3 as consumers race to buy up EVs before the incentives expire on September 30. The consensus among analysts calls for Q3 deliveries of about 432,000, which would be up 13% from Q2, but still down 6% year over year.

The second catalyst was Musk, who went on a Tesla stock buying spree. Musk bought about 2.5 million shares of Tesla stock in recent days, according to a series of SEC filings.  The value of the shares is estimated at about $1 billion.

According to Teslarati, it is Musk’s first purchase of Tesla stock since 2020, and it is Musk’s largest purchase ever.

Its certainly good news for Tesla shareholders, but investors should keep two things in mind. One, Tesla will likely see a sharp drop in sales in Q4 unless the tax credits are extended. And two, Tesla stock is still way overvalued trading at a ridiculous 235 times earnings and 156 times forward earnings.