Tesla (TSLA 2.15%) stock is expensive. There's no doubt about it. Shares trade at 14.2 times sales. Meanwhile, Rivian (RIVN 0.71%) -- another popular EV stock -- trades at just 3.3 times sales.
I think Rivian's discounted valuation makes it a buy. But make no mistake -- Tesla can pursue growth opportunities that EV competitors like Rivian can only dream of right now. The company has a huge capital advantage over the competition, plus an existing infrastructure advantage that will potentially allow it to dominate an artificial intelligence (AI) market with an estimated future value of up to $10 trillion.
Image source: Tesla.
NASDAQ: TSLA
Key Data Points
Robotaxis will be made possible by artificial intelligence
We've been promised self-driving vehicles for decades. Full autonomy has often been "just a few years away," yet we're still waiting. The long wait could finally be over thanks to AI.
In the past, autonomous driving largely used cameras and sensors to aggregate external data. But turning these complex data sets into actionable insights in real time every fraction of a second proved difficult and costly. This is where AI and deep learning can help most. AI is an incredible tool for turning complex data sets into real-world insights -- the key challenge to autonomous vehicles today.
"Rule-based systems have been the basis of decision-making in automated vehicles," observes a report from The World Economic Forum. "However, while they offer predictability and transparency, they fall short in handling the complexity of real-world driving."
Rules, in short, are helpful in attaining a minimum level of autonomy. But full autonomy involves more than rules given the countless permutations of events that can happen during real-world driving experiences. "AI can be a key enabler in overcoming technological hurdles to vehicle autonomy," the report concludes. It's no wonder, then, that Tesla recently closed a $2 billion investment into xAI, Elon Musk's AI start-up.
Tesla's AI capabilities may be second to none
If Tesla can reach full autonomy through its mounting investments into AI, it has the opportunity to take the global robotaxi market by storm. Cathie Wood, CEO of ARK Invest, think this market alone could eventually be worth up to $10 trillion.
Tesla isn't the only well-financed company investing heavily into AI and robotaxis. Many other big tech and ride-sharing businesses are doing the same. But Tesla has a unique advantage in that it can already produce its own vehicles at scale, potentially allowing it to generate real-world driving data faster than the competition.
"In the quest for robustness in [autonomous driving], one paramount challenge is the acquisition of comprehensive real-world data, upon which the effectiveness of autonomous systems relies to a large extent," concludes a research paper published by multiple leading universities in China. "However, collecting large-scale real-world data is resource intensive."
Tesla's capital advantage combined with its ability to generate real-world driving data may prove unparalleled in the robotaxi market. So while analysts and retail investors alike are already optimistic about Tesla's prospects, we may still be underestimating the company's true potential, making it an unlikely "hidden gem" despite its high valuation.
