Tesla (TSLA 3.47%) shares are up 20% in the past three days of trading, thanks to the market's positive reaction to the company's Q3 financial results. The business reported adjusted earnings per share that came in ahead of Wall Street estimates. It also helped that founder and Chief Executive Officer Elon Musk projected 2025 vehicle growth of between 20% and 30%.
Momentum is picking up for this business that has crushed it in the past decade, with shares surging 1,600% since October 2014. But investors rightfully care about what the future will hold. Where will this top electric vehicle (EV) stock be in 10 years?
Still a car business
In the three-month period that ended Sept. 30, Tesla generated $25.2 billion in revenue. Although the business has operations in the energy generation and storage sector, 79% of its top line is related to car sales. Tesla is an auto manufacturer at its core, and there's a high likelihood that this will still be the case a decade from now.
That might not bode well for the stock price. Tesla used to register fantastic growth and improving margins as rolled out EVs in a market it had largely to itself. But there's a lot of competition now, which limits the company's ability to exert pricing power.
Moreover, car companies are subject to macroeconomic forces that are beyond their control. In the past couple of years, higher interest rates have pressured consumer demand for Tesla vehicles. There's also the challenge of securing adequate commodity inputs for production.
If in 10 years, Tesla still makes most of its money from the sale of EVs, I'm confident that the stock will be a loser for investors who are expecting much more from the business.
NASDAQ: TSLA
Key Data Points
Hoping for an autonomous future
I wouldn't be surprised if Tesla's main revenue driver and business operations in 2034 look the same as they are right now. However, Tesla's strongest supporters envision a future in which the company looks dramatically different from today. If this becomes a reality, the stock could continue to be a big winner.
Tesla could operate a fleet of autonomous robotaxis one day that work around the clock and generate high-margin revenue for the business. Musk previously said that this service could have "quasi-infinite" demand.
It's hard for anyone to make an educated guess as to when or if this dream will become a reality. Musk did say that the Cybercab will go into production in 2026, and full self-driving technology, the developed version that doesn't require human intervention, is still not a real thing. No one has any clue if or when these things will happen, but what we do know is that Musk has a history of pushing back key deadlines.
Making predictions about technological advancements and adoption is extremely difficult to do accurately. Investors should adopt that same mentality when viewing Tesla, understanding that there's a lot of uncertainty.
Market optimism
Tesla shares have been a huge winner, but they currently trade about 35% off their peak price.
Even so, the stock looks extremely expensive, selling at a price-to-earnings (P/E) ratio of about 74, more than double the average for the S&P 500. I believe this reflects the market's expectation that Tesla will reach its autonomous vehicle goals in the future -- perhaps within the next decade.
But no one really has any clue about the ultimate outcome. And the current valuation prices in a lot of optimism about what the future could look like.
Tesla has crushed it for investor portfolios during the past 10 years. However, I wouldn't be surprised if the stock underperforms the Nasdaq Composite index during the next decade.
