Tesla (TSLA +0.99%) CEO Elon Musk has a history of making optimistic forecasts about the company. And during his conference call with investors for the fourth quarter of 2024 (ended Dec. 31), he made his boldest prediction yet.
He thinks Tesla could be the most valuable company in the world one day, with a bigger market capitalization than the next top five companies combined. As of this writing, the five largest companies in the world are Apple, Nvidia, Microsoft, Amazon, and Alphabet, which have a combined value of $14.7 trillion.
Could Tesla really be worth that much in the future? A new $10 trillion opportunity might be the secret to getting there, according to Musk, and it has nothing to do with electric vehicles (EVs). Read on.
Image source: Tesla.
Tesla's core business is struggling right now
Before diving into Tesla's potential, it's important to address the elephant in the room: Its core business, selling passenger EVs, isn't doing so great. The company delivered 1.78 million cars during 2024, a 1% drop compared to 2023.
That isn't good news considering passenger EV sales still account for almost 79% of the company's total revenue.
Not so long ago, Musk was forecasting 50% annual growth in deliveries as far as the eye can see, but a series of challenges, such as increasing competition and softening demand for EVs, dampened Tesla's sales.
Plus, Musk feels absolutely certain that autonomous vehicles are the future, so rather than engaging in a race to the bottom by producing cheaper and cheaper passenger EVs, he wants Tesla to focus on its new Cybercab robotaxi instead.
The Cybercab will run entirely on Tesla's full self-driving (FSD) software, so it won't come with pedals or even a steering wheel. FSD Version 13 is now available in beta mode, and owners of Tesla's passenger vehicles can test it in the real world in a supervised manner. It's the most advanced version so far.
According to the company's latest vehicle safety report, cars using FSD Version 13 are involved in one crash per 5.9 million miles driven, versus the typical American driver, who crashes once every 700,000 miles on average. As a result, Musk believes there will be Tesla vehicles running entirely on unsupervised FSD in Austin, Texas, as well as several other cities by the end of 2025.
Autonomous driving could transform Tesla's economics. Rather than just selling cars, the company can build a massive ride-hailing network for its Cybercabs, which can earn revenue by hauling passengers and completing commercial deliveries 24 hours a day. Cathie Wood's ARK Investment Management thinks this will be a $14 trillion opportunity by 2027, and other Wall Street analysts have also called this a trillion-dollar market for Tesla.
The $10 trillion opportunity: Optimus
The Cybercab opportunity could pale in comparison to Optimus, a humanoid robot that Musk is more excited about than any other product in the company's history. He says it probably has a thousand times more uses than a car, which means it can be sold into a variety of different markets.
Musk says several thousand Optimus robots will be used internally at Tesla this year to complete repetitive jobs humans don't want to do, like transporting sheet metal to a welding line. They could eventually be deployed in factories all over the world across countless industries, and they might also be popular in households to perform basic cleaning tasks.
NASDAQ: TSLA
Key Data Points
In fact, Musk thinks humanoid robots will outnumber humans by 2040. He believes Tesla will manufacture them at a cost of around $20,000, which opens the door to a sale price of under $30,000. That price will probably decline over time as the company becomes more efficient, and as competitors enter the market.
Musk put forward some ambitious targets in his fourth-quarter conference call with investors. He thinks the production ramp-up will potentially grow fivefold every year from now to eventually reach 100 million annual units.
In the long run, he says Optimus could generate north of $10 trillion in revenue.
Tesla stock is extremely expensive
If Tesla's market cap does eventually exceed the combined value of Apple, Nvidia, Microsoft, Amazon, and Alphabet, it will translate into a stock price of around $4,660. That implies a 1,200% upside from where it trades today.
The prospect of a 12-fold return sounds enticing, but investors need to consider the potential risks. Tesla's earnings per share (EPS) plunged by 53% during 2024 to $2.04, placing its stock at a price-to-earnings ratio (P/E) of 190.7. That means the stock is substantially more expensive than Apple, Nvidia, Microsoft, Amazon, and Alphabet right now:
Tesla stock would have to fall by 78% just to trade in line with the average P/E of those five stocks (40.2). That is the potential downside investors could face if Musk and his team fail to deliver meaningful progress on platforms like FSD and Optimus over the next year.
I think 2025 will be a transition year for the company. The Cybercab isn't expected to reach mass production until 2026, and Optimus production figures will probably be nominal for several more years. In fact, Musk isn't fully confident Tesla will hit its target of 10,000 humanoids this year.
That means its financial performance will hinge almost exclusively on passenger EV sales for at least the next 12 months. Considering they shrank last year, it makes the company's valuation even harder to stomach.
I don't recommend investors jump in on Tesla stock today, but if they do, they must be prepared to hold it for at least the next five years to maximize their chances of a positive return.
