Tesla (TSLA +0.49%) investors have been on a roller-coaster ride for the last few years. Shares in the electric vehicle (EV) giant surged in 2020 and 2021 as business boomed in the post-pandemic period. Now, the company is once again near all-time highs amid optimism about its pivot to self-driving cars and robotics. Can Tesla live up to the hype? Let's dig deeper to determine what the next decade could have in store.
A 10 trillion-dollar opportunity
Tesla's controversial CEO, Elon Musk, is no stranger to bold and arguably unrealistic projections. But his forecast for the company's new Optimus robots is particularly daring. First announced at Tesla's AI Day event in 2021, Optimus is a humanoid robot designed for general purpose tasks. Musk believes this could be a $10 trillion revenue opportunity as it replaces humans in repetitive and dangerous jobs.
NASDAQ: TSLA
Key Data Points
Humanoid robots also synergize with the large language models (LLMs) behind AI chatbots, which could dramatically increase their potential use cases. Tesla's management aims to produce several thousand Optimus robots this year, with an exponential ramp-up in production.
However, while Tesla's Optimus project looks exciting, investors should take everything with a grain of salt. For starters, Tesla's leadership has a track record of overpromising and underdelivering. They have already admitted the staggering complexities in building this technology, suggesting that its training needs will be 10 times more than what's needed for its full self-driving program. It is also unclear if robots will be a more efficient labor source than low-wage workers in developing countries.
Overall, investors should consider Tesla's Optimus program an experimental project instead of a core growth driver for the company.
Reinventing the automotive business
On the surface, Tesla's automotive business is fantastic. In 2024, the company sold a whopping 1.77 million vehicles, making it the second largest EV maker. Its Model Y is the best-selling car in the world. And its Cybertruck is America's best-selling electric pickup truck (with 38,965 units sold) despite its polarizing design and $80,000 price tag.
However, there is one big problem: growth. Tesla's fourth-quarter revenue increased by only 2% year over year to $25.2 billion because of an 8% decline in automotive revenue. And while the company's other business segments, like energy generation and storage, helped prop up the top line, operating income dropped 23% to $1.58 billion.
Image source: Getty Images.
The EV industry is becoming more competitive, especially in the key Chinese market. This is a significant threat for Tesla because it doesn't want to become just another low-margin automaker. Over the coming decade, self-driving cars may be the key to boosting profitability.
Analysts at McKinsey expect autonomous driving to be a $300 billion to $400 billion revenue opportunity by 2035. Tesla has an advantage because of the vast amounts of data generated by its cars already on the road. The company has also developed a supercomputer called Dojo, which is designed to process this data and assist with computer vision. In ten years, autonomous-driving-related software-as-a-service (SaaS) could become a significant part of Tesla's business model and boost its margins.
Is Tesla stock a buy, sell, or hold?
The next decade could see massive shifts as new technologies like AI, robotics, and self-driving cars become mainstream. Tesla's shareholders benefit from having a visionary leader like Elon Musk guide the company in these crucial years. And the company is on track to establish itself in high-value software and service opportunities.
However, while Tesla deserves a premium over less inspiring alternatives in the automotive industry, its forward price-to-earnings (P/E) multiple of 119 seems to already price in years of growth, so shares look more like a hold than a buy until more information becomes available.
