If Elon Musk’s vision holds true, Tesla is no longer just an automaker; it’s transforming into an artificial intelligence (AI) and robotics powerhouse. However, the market faces a formidable challenge in evaluating the stock’s potential due to the limited current AI and robotics revenue streams at Tesla.
Image source: Tesla.
The Shift in the EV Business Landscape
Today, Tesla’s core operations primarily revolve around selling electric vehicles (EVs) and delving into energy storage. Combining these two businesses, a noticeable decline in free cash flow and net income is evident, especially post the $5.9 billion boost from deferred tax assets in the fourth quarter of 2024.
The dwindling margins, now comparable to industry peers like GM and Ford, reflect a downward trend exacerbated by Tesla’s pricing strategies that have impacted profitability.
Maintaining a delicate balance between price-to-sales ratio and market valuation, Tesla’s diminishing deliveries and falling revenues paint a concerning picture for investors.
Navigating the AI Landscape: Tesla’s FSD Vision
While Tesla has a robust history of selling Autopilot features since 2014 and introducing the Full Self-Driving (FSD) feature since 2020, uncertainty clouds the adoption rate and profitability margins of the FSD option within the auto business realm.
Elon Musk’s optimistic but vague remarks hint at FSD’s potential impact on revenue, with estimates projecting a moderate incremental revenue boost, ultimately leaving the fate of Tesla’s AI ambitions ambiguous.
Despite the market’s enamorment with the robotaxi concept, the current limitations in FSD’s ability to operate autonomously cast shadows on Tesla’s path to generating substantial cash flow.
The Enigma of Tesla’s Robotics Venture
As Tesla ventures into the development of humanoid robots, the market is grappling with the prospect of investing in a product with an uncharted market demand and uncertain commercial viability.
The Stock Evaluation
Trading at astronomical valuations, with multiples that defy conventional metrics, Tesla’s current stock status raises red flags for risk-averse investors. High multiples, dwindling core operations, and nascent high-risk segments in AI and robotics pose significant challenges.
Given the existing landscape, the prudent course of action may lean towards selling rather than holding or buying Tesla stock at present.
Exploring Investment Opportunities
Prior to delving into Tesla stock, investors are urged to explore alternative investment avenues. The Motley Fool Stock Advisor team has identified compelling stocks for potential high returns, with Tesla conspicuously absent from their list.
Reflecting on historical successes, like Nvidia’s meteoric rise post-recommendation in 2005, investors are prompted to consider diverse investment strategies that align with their risk profiles and financial objectives.
Dive deeper into the potential of these selected stocks that could outperform market indices and secure solid returns over time.
*Stock Advisor returns as of September 30, 2024