Robotaxi, Cybercab And Optimus Will Open New Horizons

Key Takeaways

• Launch of autonomous vehicles and humanoid robots targets new revenue streams, enhancing margins and broadening Tesla's market beyond automotive.
  
• Regional supply chain strategy and expansion of energy business bolster revenue growth, reduce risks, and improve financial resilience.
  
• Potential leadership, execution risks, geopolitical uncertainties, and supply chain challenges threaten Tesla's growth, revenue, and profitability amidst a reliance on ambitious projects.

Catalysts

Designs, develops, manufactures, leases, and sells electric vehicles, and energy generation and storage systems in the United States, China, and internationally.

• The transition towards large-scale autonomy with the launch of the robotaxi and Cybercab in Austin by mid-next year is expected to materially impact Tesla's bottom line, dramatically increasing revenue and potentially improving net margins due to lower operational costs associated with autonomous fleets.
  
• Tesla's focus on producing vast numbers of Optimus humanoid robots aims to reach a production rate of one million units per year by 2029, which could significantly enhance revenue streams from new markets beyond automotive, potentially improving net margins as this business scales.
  
• Expansion of Tesla's energy business with increased Megapack sales and ongoing projects to double existing power plants' output through energy buffering indicates strong future revenue growth and higher gross profits from its energy segment.
  
• The company's regionalization of supply chains in major markets (North America, Europe, China) positions Tesla to reduce logistics risks and costs, improving net margins and providing resilience against tariffs impacts, thereby protecting earnings.
  
• Commitment to launching more affordable models by leveraging existing production lines may increase market share by broadening the addressable market, boosting revenue, and utilizing fixed costs more effectively, which could ultimately improve earnings.

Tesla Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tesla's revenue will grow by 15.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.3% today to 8.9% in 3 years time.
• Analysts expect earnings to reach $13.4 billion (and earnings per share of $4.25) by about April 2028, up from $7.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $19.5 billion in earnings, and the most bearish expecting $4.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 103.9x on those 2028 earnings, down from 107.4x today. This future PE is greater than the current PE for the US Auto industry at 18.8x.
• Analysts expect the number of shares outstanding to grow by 0.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.77%, as per the Simply Wall St company report.

Tesla Future Earnings Per Share Growth

Risks

• Elon's involvement with the Department of Government Efficiency (DOGE) and potential political controversies could distract from his focus on Tesla, impacting leadership effectiveness and strategic execution, which could affect company growth and earnings.
  
• The optimism about Tesla's future relies heavily on executing large-scale autonomous vehicles and humanoid robots, which presents significant execution risk. If Tesla fails to deliver on these innovations, it could negatively impact projected revenue growth and net margins.
  
• Supply chain challenges, particularly with regard to tariffs and localization, pose risks. Although Tesla has localized supply chains, unexpected tariff changes—especially involving China—could increase costs and impact net margins.
  
• Auto margins have declined due to lower vehicle deliveries and several market-specific challenges, like vandalism and hostility towards the brand, signaling challenges in customer sentiment and competitive positioning, which could impact revenue and profitability.
  
• Geopolitical uncertainties, such as the U.S.-China trade relationships and the substantial influence of tariffs, may result in increased operational costs or disruptions, especially for Tesla's energy business, affecting future profitability and capital expenditure strategies.

Valuation

• The analysts have a consensus price target of $309.487 for Tesla based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $515.0, and the most bearish reporting a price target of just $120.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $149.9 billion, earnings will come to $13.4 billion, and it would be trading on a PE ratio of 103.9x, assuming you use a discount rate of 10.8%.
  
• Given the current share price of $237.97, the analyst price target of $309.49 is 23.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.