Autonomous And Robotaxi Rollouts Will Face Setbacks But Unlock Opportunities

Key Takeaways

• Execution risks and regulatory hurdles in autonomous tech could delay revenue growth, impacting Tesla's earnings expectations and stock valuation.
  
• Rising costs from geopolitical issues and investments in AI may compress margins unless counterbalanced by price adjustments or efficiencies.
  
• Tesla's strategic focus on automation, localization, energy expansion, and affordability could drive significant revenue growth and enhance competitiveness across key markets.

Catalysts

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

• Tesla's stock valuation may be pressured by execution risks surrounding the large-scale deployment of autonomous vehicles and humanoid robots, which are yet to contribute significantly to revenue. If the anticipated rollout of autonomous rides and robots doesn’t occur as planned or is delayed past mid-2025, this could result in a downturn in expected earnings.
  
• The geopolitical and tariff issues, especially relating to rare earth materials and supply chain localization, could inflate costs for the energy and automotive segments. This could compress Tesla’s net margins if higher production costs are not offset by increased prices or operational efficiencies.
  
• Autonomy and robotaxi deployment require extensive testing and regulatory approvals, exposing Tesla to potential delays and compliance costs. This regulatory barrier could slow down the anticipated revenue growth from the autonomy business, impacting overall earnings expectations.
  
• The significant allocation of resources towards AI and FSD development, without corresponding immediate revenue generation, may lead to higher ongoing R&D expenses. This could pressure net margins if these investments do not yield profitable advancements in a reasonable timeframe.
  
• Tesla's exposure to Bitcoin valuation volatility and foreign exchange fluctuations could introduce unexpected variances in earnings. With increased market uncertainty or digital asset regulatory changes, such income volatility might negatively affect Tesla’s financial stability and investor perception.

Tesla Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Tesla compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Tesla's revenue will grow by 3.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 6.4% today to 5.1% in 3 years time.
• The bearish analysts expect earnings to reach $5.4 billion (and earnings per share of $1.52) by about July 2028, down from $6.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 95.8x on those 2028 earnings, down from 175.4x today. This future PE is greater than the current PE for the US Auto industry at 15.7x.
• Analysts expect the number of shares outstanding to grow by 0.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.65%, as per the Simply Wall St company report.

Tesla Future Earnings Per Share Growth

Risks

• Tesla's focus on large-scale autonomous vehicles and humanoid robots has the potential to significantly increase revenue and net margins if successfully executed, due to lower operational costs and new market opportunities.
  
• The localization of supply chains across America, Europe, and China provides Tesla with a strong competitive advantage, which may lead to cost reductions and stable profit margins despite tariff challenges.
  
• The progress in the energy business, particularly with Megapack and Powerwall, is creating new revenue streams that could improve overall earnings and diversify income sources.
  
• If Tesla successfully launches fully autonomous vehicles in multiple cities, starting with Austin, this could become a significant source of revenue and profitability, accelerating earnings growth in the second half of next year.
  
• A focus on affordability and launching more budget-friendly car models could expand Tesla's market share and boost vehicle sales, positively impacting revenue and net income.

Valuation

• The assumed bearish price target for Tesla is $115.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Tesla's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $500.0, and the most bearish reporting a price target of just $115.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $105.2 billion, earnings will come to $5.4 billion, and it would be trading on a PE ratio of 95.8x, assuming you use a discount rate of 10.7%.
• Given the current share price of $332.56, the bearish analyst price target of $115.0 is 189.2% lower.
• 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.