Tesla's Bold Vision: A $10 Trillion Future or Just Optimism?

Elon Musk, the ever-optimistic CEO of Tesla, has once again stirred the pot with his audacious predictions for the company’s future. During a recent conference call with investors discussing the fourth quarter of 2024, Musk claimed that Tesla could one day become the most valuable company in the world, surpassing the combined market capitalization of the current giants—Apple, Nvidia, Microsoft, Amazon, and Alphabet, which together are valued at a staggering $14.7 trillion.

However, the road to such lofty heights is fraught with challenges. Tesla’s core business of selling passenger electric vehicles (EVs) is currently experiencing a downturn. In 2024, the company delivered 1.78 million cars, marking a 1% decline compared to the previous year. This dip in sales is concerning, especially since passenger EVs account for nearly 79% of Tesla’s total revenue. Musk’s earlier projections of 50% annual growth in deliveries have been hampered by increasing competition and a softening demand for EVs.

In response to these challenges, Musk is pivoting Tesla’s focus towards autonomous driving, particularly with the introduction of the Cybercab, a robotaxi that operates solely on Tesla’s full self-driving (FSD) software. With the latest FSD Version 13 now in beta testing, Musk envisions a future where autonomous vehicles will dominate the roads, potentially transforming Tesla’s business model from merely selling cars to building a vast ride-hailing network. Analysts, including those from Cathie Wood’s ARK Investment Management, estimate that this transition could unlock a $14 trillion market by 2027.

Yet, the Cybercab opportunity might be overshadowed by Musk’s even bolder vision: Optimus, Tesla’s humanoid robot. Musk believes Optimus could have a thousand times more applications than a car, with potential uses ranging from factory tasks to household chores. He predicts that thousands of these robots will be utilized within Tesla this year alone, with aspirations to ramp up production to a staggering 100 million units annually in the future. Musk estimates that Optimus could eventually generate over $10 trillion in revenue.

Despite these ambitious forecasts, Tesla’s stock remains a point of contention. With a price-to-earnings (P/E) ratio of 190.7, the stock is significantly more expensive compared to its tech counterparts. In fact, Tesla’s earnings per share (EPS) plummeted by 53% in 2024, raising concerns about the sustainability of its current valuation. For the stock to align with the average P/E of the top five companies, it would need to drop by 78%.

Looking ahead, 2025 is poised to be a pivotal year for Tesla. While the Cybercab is not expected to enter mass production until 2026, and Optimus production is likely to remain nominal for several years, the company’s financial performance will largely depend on passenger EV sales. Given the recent decline in this segment, investors may find it challenging to justify Tesla’s current valuation.

In conclusion, while Musk’s vision for Tesla’s future is undeniably ambitious, potential investors should approach with caution. The prospect of significant returns exists, but the risks are equally substantial. Those considering an investment in Tesla stock should be prepared for a long-term hold, with the understanding that the next few years may be critical for the company’s trajectory.