It can be tempting to look at a stock's past gains and imagine how great owning it will be in the future if it continues to climb just as it has in recent times. That's why many investment disclosures warn that past performance isn't a guarantee of future returns.
Tesla (TSLA +0.57%) is one such stock. Potential shareholders no doubt look at its returns of 2,900% over the past decade and wonder, "What if?"
But there are signs that the electric vehicle dominance Tesla once enjoyed has come to an end, and falling earnings coupled with rising costs could hamper the company's growth. That said, Tesla is pursuing new opportunities -- including autonomous systems and robotics -- that have lots of potential
Here's how Tesla is positioning itself for the future and why buying the stock probably won't set you up for life.
Image source: Tesla.
Tesla is making big bets on its future
While Tesla's core business is selling electric vehicles, Elon Musk has said that the company's future will be focused on autonomous vehicles (AVs) and humanoid robotics. There's some logic to this bet considering that the global robotaxi industry could reach an estimated $1.4 trillion by 2040 and humanoid robotics are expected to be worth an estimated $5 trillion by 2050.
The company has already made some progress on these fronts. Tesla has some semi-autonomous capabilities in its vehicles, and the company has a limited robotaxi service in Austin, Texas, with human safety drivers in the vehicles. Musk recently stated that safety drivers will be removed in certain parts of Austin in the coming months, and the service will be operational in eight to 10 cities by the end of this year.
What's more, Tesla is already working on the third version of its humanoid robot, called Optimus, which will begin production toward the end of 2026. The company only has hundreds of Optimus bots right now, but one goal that's part of Musk's massive trillion-dollar pay package requires delivering over 1 million bots over the next decade.
It's these prospects that have some investors hoping Tesla's best days might be ahead of it.
Achieving its goals is going to be very expensive
But Tesla is currently facing an uphill battle on multiple fronts. First, the company's earnings declined significantly in the third quarter, with non-GAAP earnings per share falling 31% to $0.50 per share. Its operating margin also dropped dramatically from 10.8% in the year-ago quarter to just 5.8% now.
While the company got a temporary boost in vehicle sales as customers rushed to buy electric vehicles before the EV tax credits expired, the EV industry is now under tremendous pressure now that they're gone. That's coming at a very bad time for Tesla as it ramps up spending to invest in AVs and robotics.
NASDAQ: TSLA
Key Data Points
For example, Tesla's research and development costs rose dramatically by 57% to $1.6 billion in the most recent quarter. And there will likely be much more spending if Tesla wants to accomplish its goals of expanding AVs to new cities and building millions of humanoid robots.
It will take billions of dollars more in investments in the coming years for Tesla to make progress on its goals, and if history is an indicator, the company will likely take longer to achieve them than initially planned.
Why Tesla stock probably won't set you up for life
Tesla could achieve its AV and robotics goals, but it will burn through substantial cash to do so, and there's certainly no guarantee of success. Most importantly, it's betting on these two new markets at a time when the company's profitability is declining and the EV industry is facing significant hurdles due to the loss of EV credits.
It's also worth mentioning that Tesla's stock is currently extremely expensive. Its shares currently have a price-to-earnings ratio of 297, which is far above the S&P 500's average P/E ratio of approximately 31.
With Tesla ramping up its spending, its margins falling, earnings sliding, and its stock priced for perfection, buying its shares and expecting them to set you up for life just doesn't look realistic right now.
