It will probably take you quite a while to find any businesses that have rewarded their investors quite like Tesla (TSLA +2.96%) has. Despite being on a volatile journey, the company's shares have soared 1,960% in the past 10 years. A $10,000 investment a decade ago would be worth $206,000 today (as of this writing) with that type of gain.
Right now, this electric-vehicle (EV) stock carries a monster market cap of $1.1 trillion, easily making it one of the most valuable companies on Earth. If you're looking to buy shares, you might be wondering where Tesla will be 10 years from now. Here's a look at the future of this business.
Still a car company
Tesla's stock performance can be partly attributed to the success of its disruptive and innovative culture. The company took the auto industry head-on with the release of its various EV models. And today, Tesla is a leader in this niche, with about 50% market share in the U.S.
It's no surprise that in the most recent quarter, 79% of Tesla's overall revenue came directly from the sale of cars. The business does have a budding energy generation and storage unit. However, EVs drive Tesla's financial performance.
I believe there's a significant likelihood that Tesla will remain a developer, manufacturer, and seller of EVs a decade from now. There's still a long way to go in terms of adoption, both domestically and abroad.
But some investors might not like this perspective. That's because in recent times, Tesla has broken away from its hyper-growth days and now resembles a traditional automaker. Its revenue growth through the first nine months of 2024 was up just 0.5% year over year, and the Q3 operating margin of 10.8% was well below the figure from two years ago.
NASDAQ: TSLA
Key Data Points
Transitioning to a software business
Tesla's strongest bulls, as well as its founder and CEO Elon Musk, envision a totally different future. The company is working to one day launch and operate a global fleet of self-driving robotaxis. Tesla provided more info on this vision in early October, mentioning that it plans to start production of the smaller and cheaper CyberCabs in 2026.
Imagine a scenario where driverless Tesla EVs roam the streets, picking up and dropping off passengers at all hours of the day. By operating the software powering these cars, Tesla can earn a high-margin revenue stream. That's the ultimate plan, and if it comes to fruition, it could improve the financial picture for the business.
Musk has previously overpromised on his self-driving dreams, but fervent supporters believe that a favorable outcome is a certainty. I'm no expert on technological adoption curves or details about autonomous driving, although I do think it's impossible to know when, or if, it will happen. A big hurdle to overcome is the fear that humans have toward this technology, in addition to ongoing technical and regulatory uncertainty.
Steep valuation
There might be no company out there that gets the attention that Tesla does. By operating at the cutting edge of various technologies -- like autonomous driving, robotics, and artificial intelligence -- Tesla is certainly an interesting business to follow. Plus, its visionary CEO is one of the most successful entrepreneurs we've ever seen and now has entered the political arena.
Consequently, Tesla won't ever fly under the radar. And maybe even worse, its status as a "story stock" means that the valuation can easily get detached from the underlying fundamentals. As of this writing, shares trade at a price-to-earnings ratio of 92.8. Clearly, the market has extremely high hopes for this company and where it could be in the future.
Based on the steep valuation, as well as the fact that Tesla remains nothing more than a car company today, I wouldn't be surprised if the stock underperforms the broader Nasdaq Composite index over the next decade.
