After doubling off its 52-week lows, Tesla (NASDAQ:TSLA) stock continues to climb. The market’s high pessimism for TSLA stock at the start of the year seems to have shifted into high optimism. Hopes are that this electric vehicle (EV) maker can continue to thrive despite current economic challenges. Even as other growth stocks pull back on recent macro news, investors are willing to keep bidding up TSLA.

With all this in mind, you may be wondering what lies ahead for the company from here. In the near term, due to several different factors, shares of this EV play could stay on an upward trajectory.

However, while TSLA may keep performing well in 2023, investment returns over a longer timeframe (like, say, two years) could end up being far less impressive than many fans of the stock currently expect.

Let’s dive into my Tesla price prediction for 2025.

TSLA Stock Should Stay Elevated (For Now)

I’ve expressed skepticism in recent coverage, but I’ll admit that there’s plenty in play that could potentially keep this top EV stock at elevated prices.

For instance, with Tesla’s much-awaited “Investor Day” just a few weeks away (March 1), more investors could continue to jump into TSLA stock, expecting that the event will include an unveiling of plans for its third-generation vehicle platform. This next vehicle platform could enable Tesla to further reduce manufacturing costs.

Besides boosting its chances of winning an emerging “EV price war,” production cost reductions may also enable Tesla to introduce lower-priced vehicle models for the mass market. And alongside that, two other things may help TSLA stock sustain (and possibly grow) its current valuation.

First, upcoming delivery numbers could indicate that Tesla’s recent vehicle price cuts are creating significant demand, which would suggest the company has a shot of hitting CEO Elon Musk’s deliveries stretch goal of 2 million vehicles this year. Second, if the next few quarterly reports indicate that price cuts are not having a big impact on margins — or that increased demand outweighs the impact — that could also bolster investor confidence.

Challenges Ahead in 2024 and 2025

So, TSLA stock may stay in the fast lane during 2023. However, next year may also be a different story as well as the year after that. Why? Although Tesla is perhaps successfully keeping the competition at bay today, that may not be the case in the years ahead.

With the aforementioned “EV price war” only in its early stages, it’s unclear how far automakers will go in order to capture a larger piece of the market. Traditional automakers are also tweaking their dealership-based sales models, which could also minimize the edge Tesla gains from its direct-to-consumer model.

As old school competitors play catch up over the next two years, Tesla could see a serious impact on its future growth, not to mention margins. The company could keep growing at a double-digit clip, but it’s possible said growth decelerates greatly in 2024 and 2025. In turn, this stands to have a big effect on TSLA stock’s future performance.

Right now, with rising confidence that Tesla will be able to get back to 50% annualized growth, shares have propelled back up to a very high valuation (50 times trailing earnings). If growth decelerates, this valuation will likely contract in a huge way.

My Price Prediction for Tesla in 2025

Don’t get me wrong. After years of trading at a tech stock valuation, I don’t think TSLA stock is headed toward a price-to-earnings (P/E) ratio in line with traditional automakers (less than 10 times earnings).

However, it’s not far-fetched to believe that, as growth slows, Tesla’s valuation will contract to 20 or 30 times earnings. Per current forecasts, Tesla is expected to earn $6.68 per share by 2025. Apply a 30 times multiple and that yields a price of around $200 per share.

Sure, factors like the rollout of new vehicle models could outweigh negatives to growth like competition. Yet, looking at the Cybertruck delays as precedent, lower-priced models may be many years away from launch. Hitting consensus may be the best case scenario here.

With that in mind, I predict that TSLA stock in 2025 will (at best) trade at prices at or near current levels.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.