Tesla (TSLA +2.96%) achieved impressive things in the course of its journey to becoming one of the world's most valuable companies. Shares climbed by 215% in the past five years. And today, this business sports a market cap of nearly $1.5 trillion.
Tesla has its fair share of bullish supporters. It also has critics. Whichever side of the fence you're on now, it wouldn't be smart to either ignore this stock or jump into it without thorough consideration. Instead, dig in, build an investment thesis and make an informed decision. The key question for buy and hold investors should be: Where will this electric vehicle (EV) stock be five years from now?
Image source: Tesla.
What if Elon Musk is right?
CEO Elon Musk has undoubtedly been a visionary in the world of technology and business. His mission for Tesla was crafted along the lines of creating a more sustainable world. In order to achieve that, in his view, EVs need to go mainstream. With Tesla's popular model line-up, EV's have become more widely adopted. This drove many others in the auto industry to follow suit, both incumbents and upstarts.
Tesla's growth over the long term has been tremendous. Its automotive revenue grew from $3 billion in 2014 to $77 billion in 2024. It has the leading EV market share in the U.S.
But while Tesla is still primarily a car company today, Musk thinks its business model will look totally different in the future. He can be criticized for having overpromised and under-delivered at times, but what if this time he's right?
Envision a world in 2030 that has Tesla robotaxis operating internationally. A rideshare platform build around those self-driving EVs could rival Uber for dominance in that space; it could also provide Tesla with a recurring source of high-margin revenue. Tesla would manage its own fleet, while people who buy its autonomy-capable EVs could choose to make their cars available on the platform when they aren't using them and earn passive income.
Additionally, Musk has said he wants Tesla to ramp up production of its Optimus humanoid robots. Imagine if these devices are broadly adopted by businesses and households. Though the Optimus is not yet capable of operating fully autonomously in many situations, Musk has previously said he believes the autonomous humanoid robot industry is a $10 trillion revenue opportunity.
Assuming Tesla finally starts to make substantial progress with these two key initiatives, the company's financials will certainly get a massive boost. This means that by 2030, its revenue would be much higher than it is today, which would drive its earnings higher. That could provide a lift to the stock.
NASDAQ: TSLA
Key Data Points
Tesla's future could look similar to today
There's also a bearish way to view things. Tesla might not make good on Musk's promises, or reaching his goals might take a lot longer than he and the optimists anticipate. In that case, Tesla's business in 2030 would look similar to the way it does today. And what it looks like today is a struggling EV manufacturer.
Its automotive revenue declined 16% year over year in the second quarter. Tesla has struggled to grow sales meaningfully now that interest rates have risen back toward historically normal levels, which makes buying cars more expensive. It's also facing intense competition, not only from domestic rivals but from international players, particularly in China. In its efforts to maintain its market share, Tesla has cut prices on its vehicles repeatedly, which has cut into its profitability.
This paints a bleak picture. If Tesla continues on this path, shareholders probably won't be pleased with the results.
Maybe what Tesla will look like five years down the road is somewhere between the optimistic image the bulls have in mind and the struggling EV maker the bears can see today. Even assuming the business lives up to Musk's promises in terms of delivering the technology, it's difficult to ignore the matter of its current valuation. Shares trade at an astronomically high price-to-earnings ratio of 259. A great deal of hoped-for future earnings growth appears to have been baked into the shares.
Tesla might prove the doubters wrong. And in 2030, its robotaxi and robot businesses could be the key segments driving its finances. However, at this point, the starting valuation sets expectations too high. It won't be surprising if Tesla stock underperforms the broader market over the next five years.
