Artificial intelligence (AI) is probably one of the biggest trends that will change our daily lives in the coming decades. While AI is still in its early development stage, companies like Nvidia and Palantir have already seen an impact on their business growth in recent quarters.
Still, some winners have yet to make money from selling AI-related services and products but are well-positioned to do so in the future. Tesla (TSLA +2.40%), one of the leading technology companies of our generation, is among those companies.
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From EV to autonomous driving
Tesla, arguably, has contributed more to the automotive industry than any incumbent car maker since Ford Motor Company introduced its Model T in the early 1900s. The EV maker almost single-handedly drove the mass adoption of electric cars in the U.S. when most of the incumbents were skeptical of the potential of EV cars.
And while the EV transition will probably take decades to complete, the tech company is now riding on an even more significant trend of autonomous driving. According to McKinsey & Company, passenger car advanced driver-assistance and autonomous driving systems could generate $300 to $400 billion in revenue by 2035. And that's just revenue from selling these systems. The rise of autonomous driving systems could also open up other business opportunities for Tesla, such as launching a robotaxi service.
There are good reasons to believe that Tesla is a front-runner well-positioned to grab a decent, if not substantial, market share in this emerging industry. For instance, Tesla has a huge fleet of vehicles (in the millions) that are constantly generating real-world driving data. This massive (and ever-growing) data set helps train Tesla's models used to develop autonomous driving software, allowing the tech company to maintain its leadership in the autonomous driving race.
Besides, Tesla's vertical integration from manufacturing cars to designing its software and chips gives it the speed and flexibility to optimize and improve its AI systems rather than rely on external parties for critical software or components. To this end, Tesla's custom-built Dojo supercomputershelp train complex AI models with vast amounts of driving data, giving the company an edge in large-scale, low-cost computing.
While it's too early to declare victory, Tesla's early-mover advantage and its massive investment in AI positions the company well to maintain its leadership in the emerging autonomous driving industry. If it can sustain its current leadership, it's likely just a matter of time before it starts making billions from this venture.
NASDAQ: TSLA
Key Data Points
AI and robotics
Another area in which Tesla has huge ambitions is to build and sell humanoid robots. Known as Optimus, these Tesla bots could help solve problems in almost every sector, from manufacturing to healthcare, domestic care, education, etc.
According to Tesla CEO Elon Musk, the company could make trillions in profits from selling these robots to perform such tasks as teaching kids, babysitting, working in factories, and more. The idea is that, eventually, every human being will own one (or more) of these robots, and if Tesla grabs a substantial market share of, say, 10% and makes $10,000 profit from each robot, it would translate into trillions of dollars on the bottom line.
While these predictions are probably too rosy -- Musk is never shy of giving huge targets -- the opportunity is still massive even if the company could reach just 5% of that target.
As a leading AI and auto manufacturing player, Tesla can leverage its technology know-how and massive resources to develop and grow this business. In fact, the company expects to start using Optimus robots in its factory by next year and hopefully start selling them to external customers by 2026. While these dates may change (or be postponed), announcing them publicly indicates that Tesla is on its way to making Optimus a reality.
Suppose the company can continue to improve its AI software systems and integrate them with hardware via its advanced engineering capabilities. In that case, there is a decent chance that we could get our hands on these robots in the next few years. This venture could be worth more than Tesla's automotive business at some point.
What it means for investors?
Tesla has been an early proponent and a heavy user of AI for many years even though it may not seem evident to many investors. This will change, especially as the autonomous driving starts to pick up and humanoid robots become a reality. While this will not happen overnight, the impact should be massive for Tesla and its shareholders.
Investors should start keeping an eye on the company.
