Key Points
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A recent analyst’s note suggested that Tesla stock could surge by 25% due to the company’s autonomous vehicle initiatives.
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The AV market is projected to be worth an estimated $1.4 trillion by 2040.
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Tesla is investing heavily in AVs at a time when its profits are falling.
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While many automotive companies are trying to figure out how to transition to electric vehicles (EVs), Tesla (NASDAQ: TSLA) is in the midst of figuring out how to pivot to robotics and autonomous vehicles (AVs). CEO Elon Musk has made this shift a priority, and even part of his potential $1 trillion pay package rests on whether he delivers on some AV goals.
There is no guarantee Tesla can pull it off. Investments in AVs are expensive, and Tesla has significant competition from Alphabet‘s Waymo and others.
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However, an increasing number of analysts believe Tesla is on the right track, including Stifel analyst Stephen Gengaro, who recently said that Tesla stock could rise 25% if it achieves its AV goals. With more analysts getting bullish on Tesla’s self-driving ambitions, it’s worth taking a look at what these analysts are expecting and what challenges Tesla faces.
Image source: Tesla.
These analysts think robotaxis will be huge for Tesla
Gengaro said in a recent investor note that Tesla’s full self-driving (supervised) system and robotaxi services “are critical to the story” for the company and a large part of his valuation of the company’s share price — leading to the estimate that Tesla’s stock could get a 25% bump from the tech.
The optimism stems from Tesla’s opportunity to use its artificial intelligence technology to improve its semi-autonomous systems and for its nascent robotaxi service to continue expanding. Other analysts believe AVs could be a major catalyst for the company as well. Here are a few of them:
- Cathie Wood of Ark Invest estimates that 90% of Tesla’s enterprise value and earnings could come from its autonomous systems by 2029.
- Wedbush’s Dan Ives thinks Tesla’s market cap could reach $2 trillion by the end of next year because of its autonomous vehicle pursuits.
- Cantor Fitzgerald’s Andres Sheppard believes Tesla is on track with its autonomous Cybercab production for 2026 and boosted Tesla’s share price target last month from $355 to $510 as a result.
- Gene Munster of Deepwater Asset Management forecasts that up to 40% of Tesla’s operating income could come from robotaxis and licensing FSD by 2030.
Some autonomous vehicle estimates help support the case for Tesla’s long-term AV opportunity. Specifically, autonomous vehicles and services are projected to be worth $1.4 trillion by 2040.
Why investors shouldn’t get overly excited just yet
Tesla has said that it will launch its robotaxi service in five new cities and have 1,500 self-driving cars in service by the end of this year. Currently, Tesla offers limited service in Austin, Texas. The company also plans to build its Cybercab vehicles for its robotaxi service, which will be produced sans steering wheel and pedals, beginning in April.
But Tesla’s pivot to AVs comes at a time when it’s not performing well financially.
Consider that Tesla’s profits are falling, with generally accepted accounting principles (GAAP) net income declining 37% in the third quarter to $1.4 billion. At the same time, the company’s operating expenses jumped by 50% to $3.4 billion.
The problem is that Tesla will have to spend billions of dollars to build its Cybercabs and invest in AV technologies. But it’s facing financial hurdles as EV tax credits have expired, and as car buyers shift their attention away from EVs and toward hybrids.
This doesn’t mean Tesla’s autonomous vehicle ambitions are doomed, of course. The company certainly has disproved naysayers plenty of times before. However, investors buying Tesla stock now, hoping to ride to AV glory, should understand that Tesla is pivoting to costly autonomous vehicle technology at a challenging time in the EV industry and a financially difficult period in Tesla’s history.
All of which means that investors should probably wait to see how some of this plays out before jumping on board with Tesla just yet.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and 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.
