Tesla (TSLA 0.15%) is one of the best-performing stocks in history. Since going public in 2010, the stock is up more than 21,300%, which translates to a compound annual return of 51.1%. For context, the benchmark S&P 500 index returned 11.6% per year over the same period (without dividends).

Tesla has grown so quickly that it completed two stock splits to ensure it remains accessible to smaller investors. The latest was in August 2022, when the company conducted a 3-for-1 split.

Naturally, the electric vehicle (EV) giant also caught the attention of some of Wall Street's top investors, including Cathie Wood, who runs Ark Investment Management. She is incredibly bullish on Tesla, and says the company is the biggest artificial intelligence (AI) play in the world. That's right: There is more to this story than EVs.

Wood has put her money where her mouth is: Tesla stock is Ark's second-largest holding overall. It's no surprise because the firm believes it could soar another 720% from where it trades today, as the company leverages AI to develop autonomous vehicles. Here's how it could all unfold.

A blue Tesla car driving on an open road.

Image source: Tesla.

Tesla's vehicles will pave the way for a bigger opportunity

Tesla is on track to produce 1.8 million cars this year, making it the largest pure-play EV company in the world. But, more importantly, it's selling those EVs for a profit, which is something no other U.S. manufacturers have been able to accomplish.

Tesla's scale and its innovative production processes earned the company one of the highest gross profit margins in the entire automotive industry. But the company is just getting warmed up, because CEO Elon Musk believes it could produce 20 million cars per year from 12 gigafactories by 2030.

That would make Tesla one of the largest car companies in history, but there's another reason Musk wants to flood the roads with his product.

Tesla is a leader in fully autonomous driving technology. Wood says the company has 5 million cars on the road constantly collecting data (in beta mode), which is more than every other company combined. It means it (theoretically) has the most advanced software in the market, and every vehicle it sells is a potential future customer.

Autonomous driving could be Tesla's greatest opportunity ever

Software carries a higher gross profit margin than hardware products like cars because it can be developed once and sold an unlimited number of times. But aside from selling self-driving software to owners of Teslas, Musk also wants to build an autonomous ride-hailing network.

He says the average passenger vehicle is used for only 12 hours per week, so with driverless capabilities, it could earn income during its downtime by serving as a robotaxi. The revenue would be split between the owner of the vehicle and Tesla.

Musk believes that by selling autonomous software and operating the ride-hailing network, Tesla could increase its gross profit margin on the production of each vehicle to 70% (or higher) over time, from 17.9% today. It would completely transform the company's economics, and it's the basis for Ark's lofty price target on Tesla stock.

Tesla's financial breakdown could change significantly

There have been cracks in the broader economy lately. Tesla, along with almost every other car manufacturer, has been slashing prices to spur demand as consumers pull back on their spending.

It has worked throughout most of the year with Tesla's vehicle deliveries remaining strong. But in the third quarter (ended Sept. 30), it delivered 435,059 cars, which was below Wall Street's forecast. The company said the reason for the shortfall was planned downtime for factory upgrades, and it didn't budge from its full-year production target, which signals an expectation that demand should remain strong.

But the price cuts are affecting Tesla's financials. The company's third-quarter revenue of $23.4 billion represented an increase of just 8.8% compared to the same quarter last year. But its bottom line took the largest hit, with net income shrinking 44%.

A breakdown of Tesla's financial results for the third quarter of 2023.

Data source: Tesla. Infographic by The Motley Fool.

But, again, the long term could look very different. If Tesla is successful in flooding the market and remaining the dominant EV producer, it will have laid the foundation for its lucrative robotaxi business.

EV sales account for 84% of Tesla's total revenue today. By 2027, Ark Invest thinks that number could shrink to 47%, with robotaxis contributing 44% of total revenue (from basically zero today).

A series of pie graphs showing how robotaxis will account for 44% of Tesla's revenue by 2027.

Data source: Ark Investment Management.

It could send Tesla stock 720% higher

The above scenario would see Tesla generate over $1 trillion in annual revenue by 2027, earning the company a valuation of $6.1 trillion. That translates to a stock price of $2,000, implying a massive 720% gain from where it trades today.

But the math says Ark's forecasts might be a little ambitious. Tesla is expected to generate $97.2 billion in revenue this year, so it would have to grow at a compound annual rate of 80% to reach $1 trillion in revenue by 2027. Here's the problem: Not even Musk is that optimistic. He expects his company to grow at around 50% per year for the foreseeable future.

The big unknown is just how quickly industries like autonomous ride-sharing will take off. Ark thinks it could generate $4 trillion in revenue over the next five years, and if that happens, Tesla could find the extra growth it needs in that segment alone.

Nonetheless -- timing aside -- Wood says Tesla stock will always remain a top-five holding at Ark as long as autonomous driving becomes a reality.