Tesla’s Rocky Road: Can AI Propel It to New Heights?
Among the “Magnificent Seven” stocks, Tesla (NASDAQ: TSLA) is the only one that has not posted a double-digit return so far in 2024. While there have been some notable rises in Tesla stock at different periods this year, shares are up just 4% as the end of October nears.
Despite these uninspiring gains, Tesla CEO Elon Musk remains highly optimistic. During the company’s third-quarter earnings call, he informed investors that he believes “Tesla will become the most valuable company in the world, and probably by a long shot.”
What Could Boost Tesla’s Growth?
Tesla’s main sources of growth currently stem from its electric vehicles (EVs) and power storage business. While Tesla leads in both areas, cars and renewable energy alone may not be sufficient to secure its spot as the world’s most valuable firm.
The game changer for Tesla could be artificial intelligence (AI). Presently, two key focus areas for Tesla’s AI investments are autonomous driving technology and humanoid robotics.
This article will explore the potential of self-driving cars and robotics to significantly impact Tesla’s valuation.
Image source: Getty Images.
How Could AI Alter Tesla’s Valuation?
Autonomous driving could revolutionize Tesla’s future. Initially, people may be drawn to Tesla because of self-driving features. However, the benefits extend much further than just convenience.
Tesla envisions creating a fleet of Robotaxis. These driverless vehicles could serve diverse purposes beyond personal transportation, such as catering to delivery companies, rental services, or ride-hailing businesses.
The primary advantage lies not only in potential sales boosts should the Robotaxi initiative succeed. The software behind autonomous driving is expected to yield significantly higher profit margins than traditional car sales. Therefore, improved margins could translate directly into increased net income and free cash flow for Tesla.
By integrating software profits with its traditional automotive business, Tesla may no longer be perceived merely as a car manufacturer, potentially leading to a higher valuation.
In addition to autonomous vehicles, Tesla is developing humanoid robots, known as Optimus. Musk believes this could be “the most viable product that we made.”
The goal is to utilize these robots in Tesla’s factories to assist human workers with repetitive tasks, thereby increasing overall productivity. If successful, Tesla might license this technology to other industries reliant on manual labor, which could spur substantial growth and further enhance its valuation.
Should You Buy Tesla Stock Now?
A few months back, Musk made a statement that likely unsettled many investors. He cautioned that if they didn’t believe in Tesla’s AI vision, they shouldn’t buy the stock.
It is evident that Musk sees Tesla as more than just a manufacturer of cars and green energy solutions. He is fully committed to AI and considers this technology a vital link between Tesla’s various sectors. If either autonomous driving or humanoid robotics falls short, it may lead to major drops in Tesla’s stock price.
Although I consider Tesla stock an appealing opportunity, it may not be suitable for everyone. Regardless, I believe Musk’s forecast of Tesla becoming the world’s most valuable company holds merit.
As a long-term Tesla shareholder, I plan to maintain my investment. I feel Tesla is on the verge of a significant transformation, and I’m optimistic these technological advancements have yet to be fully factored into the stock’s current valuation.
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Adam Spatacco has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
