Tesla Shifts Focus: 67% of Future Earnings Hinged on AI-Powered Autonomy
Tesla (NASDAQ: TSLA) has long been synonymous with electric vehicle (EV) dominance, contributing 84% of its current revenue. However, according to seasoned tech investor Cathie Wood, Tesla's future success lies in artificial intelligence (AI). Wood, through Ark Investment Management, projects that AI, specifically autonomous self-driving technology, will comprise 67% of Tesla's earnings by 2027.The Current Landscape
As of now, Tesla leads the EV market, aiming to produce 1.8 million EVs in 2023. CEO Elon Musk envisions a 50% annual growth rate, with plans to operate up to 12 gigafactories globally by 2030, capable of producing 20 million EVs annually. Tesla's competitive advantage stems from a significant head start and economies of scale, allowing it to maintain higher gross profit margins than other automakers.
Challenges Amidst Growth
To secure its ambitious growth, Tesla faces challenges from emerging EV competitors. Despite slashing EV prices by 20%, Tesla expects slower revenue growth in 2023, projecting a 19% year-over-year increase—its slowest pace in history. Additionally, Tesla's earnings per share are anticipated to decline by 22%, reflecting the toll of a price war on its financials.
Venturing into Autonomy
In a bid for future dominance, Tesla has been diligently developing its Full Self-Driving (FSD) software for over a decade. Musk claims Tesla's FSD is the industry's most advanced, with over 300 million miles driven by customers using the beta version. Ark Invest estimates that Tesla has 2.7 million customer cars actively testing FSD, providing valuable data for AI development.
The Robotaxi Vision
Musk's ambitious plan includes launching a fully autonomous robotaxi by 2024, designed without pedals or a steering wheel. This autonomous ride-hailing network, once fully operational, could utilize any Tesla vehicle, allowing owners to contribute to the company's ride-hailing network when their cars are not in use. Ark Invest predicts that by 2027, Tesla's annual revenue will surpass $1 trillion, with 44% originating from the robotaxi business.
Cautionary Notes on Projections
While Ark Invest's predictions paint a lucrative future for Tesla, skepticism exists. The $1 trillion revenue target by 2027 demands an 80% annual growth rate from the projected $97 billion in 2023. Musk's own growth target is more conservative at 50%. The scalability of Tesla's robotaxi and ride-hailing businesses also remains uncertain, especially with established competitors like Uber already in the autonomous driving space.
Investors should approach Tesla's future trajectory with cautious optimism. While Ark's projections suggest a potential $6 trillion valuation and a 770% upside in stock value, achieving these targets by 2027 is a formidable task. Tesla's success in transitioning from EV sales to AI-powered autonomy remains a dynamic story that will unfold in the coming years.
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