Exploring Tesla's Future: The Next Decade Ahead
Predicting the Destination of Tesla Shares in a Decade
Investors in Tesla (TSLA -4.68%) have been on a wild ride these past few years. Shares in the electric vehicle (EV) titan surged in 2020 and 2021, fueled by business prosperity in the post-pandemic era. Now, the company is touching new highs, driven by optimism about its shift towards self-driving cars and robotics. But can Tesla live up to the hype? Let's delve deeper to decipher what the next decade may hold.
Embracing a 10 Trillion Dollar Opportunity
Tesla's controversial CEO, Elon Musk, never shies away from ambitious and at times, unrealistic predictions. His latest projection for the company's Optimus robots is no exception. First revealed at Tesla's 2021 AI Day event, Optimus is a humanoid robot designed for performing various tasks. Musk envisions this as a potential $10 trillion revenue stream, replacing humans in repetitive and dangerous jobs.
Humanoid robots have the potential to seamlessly integrate with large language models, powering AI chatbots and expanding their use cases. Tesla's management is aiming to manufacture several thousand Optimus robots this year, with plans for an exponential growth in production.
However, while the Optimus project promises excitement, investors should approach it with a dose of skepticism. Tesla's leadership has a history of overpromising and underdelivering. They themselves acknowledge the immense complexities involved in creating this technology, suggesting that its training requirements could be 10 times greater than what's needed for full self-driving car capabilities. It remains unclear if robots will be a more viable labor source than low-wage workers in developing countries.
In essence, Tesla's Optimus program should be viewed as an experimental project rather than a core growth driver for the company.
Revolutionizing the Automotive Landscape
Tesla's automobile business appears robust from the outside. In 2024, the company sold a staggering 1.77 million vehicles, making it the second-largest EV maker. Its Model Y is the world's best-selling car, and its Cybertruck, despite its controversial design and high price tag, became America's best-selling electric pickup truck (38,965 units sold).
However, there's one significant challenge: growth. Tesla's fourth-quarter revenue inched up by only 2% YOY to $25.2 billion due to a 8% decline in automotive revenue. While other business segments, like energy generation and storage, largely offset the fall, operating income dropped 23% to $1.58 billion.
The EV market is becoming increasingly competitive, especially in China – a crucial market for Tesla. Competitors are posing a substantial threat, and Tesla doesn't want to become just another low-margin automaker. Self-driving cars may hold the key to boosting profitability over the coming decade.
Analysts at McKinsey predict autonomous driving to become a $300 billion to $400 billion revenue opportunity by 2035. Tesla is well-positioned, given its fleet of self-driving cars already on the roads and its recently launched supercomputer, Dojo, designed for data processing and computer vision. In the future, autonomous driving-related software-as-a-service (SaaS) may significantly contribute to Tesla's business model, enhancing its margins.
Should I Buy, Sell, or Hold Tesla Stock?
The next decade could witness drastic changes with the emergence of technologies like AI, robotics, and self-driving cars. Tesla's shareholders gain from having a visionary leader like Elon Musk navigating these critical years. And the company is well-positioned to capitalize on high-value software and service opportunities.
However, while Tesla deserves a premium over conventional alternatives in the automotive industry, its current forward price-to-earnings (P/E) multiple of 119 might already account for years of growth. Therefore, Tesla shares appear more like a hold, requiring more information and developments before it can be classified as a buy.
- Despite Tesla's success in the EV market, its automotive revenue saw a slight decrease in the fourth quarter, raising concerns about its ability to maintain profitability in the face of increasing competition.
- Musk's announcement of Tesla's Optimus robots, aimed at replacing humans in repetitive and dangerous jobs, has been met with skepticism due to the company's history of overpromising and the complexities involved in creating such technology.
- Tesla's leadership acknowledges the potential $10 trillion revenue stream from the Optimus robots, but they also suggest that the training requirements could be 10 times greater than what's needed for full self-driving car capabilities.
- Analysts predict that autonomous driving will become a billion-dollar opportunity by 2035, and Tesla, with its fleet of self-driving cars and the recently launched supercomputer Dojo, is well-positioned to capture a significant share of this market, potentially enhancing its margins.
