Without a doubt, Tesla (TSLA 0.04%) has been one of the best investments in the past decade. As of this writing, shares have soared 2,330% since December 2013.

This top automotive stock is now the ninth most valuable company in the world. And it has done this by spearheading the EV (electric vehicle) industry, while also keeping its foot on the gas as it relates to technological innovation.

Even at a current market cap of $750 billion, some investors might be hoping that Tesla's stock can double in the next five or so years. Here's what has to happen for this lofty outcome to become a reality.

Profitable growth is a necessity

Between Q3 2018 and Q3 2023, this business was able to grow revenue from $6.8 billion to $23.4 billion, translating to an unbelievable compound annual rate of 28%. Surely, this top-line metric can be credited for being a key factor driving shares higher.

Over the next five years, there's no question that Tesla will need to continue increasing sales. That's not hard to believe. According to Canalys, EV units represented 16% of total light vehicle sales globally in the first half of 2023. Some estimates call for this figure to jump to 86% by 2030. I don't think anyone doubts that Tesla should continue to be a clear leader in the industry far into the future.

Perhaps more importantly, this company will need to continue finding ways to boost profitability. To its credit, Tesla generated positive net income in 2020, a trend that hasn't changed. This contrasts wildly with the unprofitable EV operations at rival companies. Bolstering manufacturing capabilities and lowering the cost of production has helped Tesla grow the bottom line.

But investors shouldn't easily assume that this business will be able to expand its margins going forward. We've seen macro headwinds, like higher interest rates and inflation, as well as stiff competition, lead Tesla to implement numerous price cuts for its vehicles this year. That's why the operating margin last quarter of 7.6% was meaningfully lower than 17.2% in the year-ago period. Competition isn't going away, which will surely make things more difficult.

Nonetheless, the thesis for investors to own Tesla shares likely incorporates the successful rollout of a worldwide robotaxi service. Should this happen, Elon Musk says margins and profitability would skyrocket, and there would be "quasi-infinite demand."

"The short-term variances in gross margin and profitability really are minor relative to the long-term picture," Musk said on the Q2 earnings call. "Autonomy will make all of these numbers look silly."

High expectations

Whether autonomy happens or not, it's still easy to believe that Tesla will post strong revenue and earnings growth, even if these numbers rise at a slower clip than in the past.

But the current valuation presents a major headwind getting in the way of the stock doubling in the next five years. Shares currently trade at 77 times trailing earnings. That's a steep price to pay, even for one of the world's most disruptive companies.

If Tesla is successful at finally introducing its full self-driving capabilities to market, an innovative breakthrough that has been delayed multiple times, then the optionality and upside potential is truly massive. However, there is still a ton of uncertainty around this outcome, especially within the next five years.

While it hasn't been a smart idea historically to bet against Elon Musk, I think the current valuation represents the enthusiasm that shareholders have toward this company. It's almost as if investors believe that robotaxis are an inevitability, which is not the case.

Based on its track record of incredible returns, investors might think Tesla shares are automatically going to double in the next five years. But I don't think it's a sure thing.