Tesla (TSLA 0.48%) shares have had a magnificent run since their initial public offering in 2010. But over the past half-decade, they have only risen by 69% (as of June 26).
The S&P 500 index, by comparison, has generated a total return of 85%. Investors might be thrown off by the electric vehicle company's underperformance.
There is chatter about a merger between Tesla and Space Exploration Technologies. Assuming this potentially massive deal doesn't go through, where will Tesla's shares be in five years?
Image source: The Motley Fool.
Bringing AI to the physical world
In 2025, Tesla's automotive revenue of $69.5 billion accounted for 73% of the company's entire top line. Founder and CEO Elon Musk wants the business to evolve from one-time sales like this. Tesla continues to develop its artificial intelligence capabilities in hopes of creating a major impact on the physical world.
Autonomous driving technology is one area. The Cybercab, which will supply the Robotaxi platform and full self-driving software to customers, is slowly progressing.
With Optimus, robotics is the other focus. Tesla is preparing its Fremont factory to eventually produce 1 million robots per year. In 2024, Musk said that he believed Optimus would one day lift the company's total market capitalization to $25 trillion.
It's impossible to know the exact timeline for these two strategic priorities. In five years, Tesla's sales and profit mix could look fundamentally different from today. If autonomous driving and robotics take longer than planned, then the company likely won't change much.
NASDAQ: TSLA
Key Data Points
Expectations will be hard to beat
Any objective observer of Tesla would come away impressed by what the business is trying to do. However, the ambitions of all this technological innovation must eventually result in a financial windfall. This is the company's biggest question.
The market is extremely bullish, which is not a shock given the benefit of the doubt that Elon Musk receives from supporters. Tesla shares trade at an eye-watering price-to-earnings ratio of 347. This is a stock priced for perfection.
Assume that Tesla's valuation is the same in June 2031, and earnings per share would need to expand 100% for the stock to double.
This profit forecast, while encouraging, most likely wouldn't satisfy the investment community. The market has extremely high hopes. And its patience will eventually be put to the test.
I think the only way Tesla's stock becomes a big winner over the next five years is if the company rapidly commercializes its Robotaxi service worldwide, while simultaneously scaling Optimus manufacturing and selling them in commercial settings. These trends need to develop to the point where they start to have a sizable impact on Tesla's financial performance.
The stock's extreme valuation makes me doubtful that even notable fundamental improvements will make Tesla a winning portfolio addition over the coming five years.
