Expansion In AI, FSD, And Robotics Will Transform Future Industries

Key Takeaways

• Expansion of FSD and strategic investments in AI and new technologies suggest significant potential for increased revenue and improved margins.
  
• Anticipated growth in Optimus robot production and stationary battery manufacturing indicates potential new revenue sources across various sectors.
  
• Aggressive manufacturing changes, pricing strategies, and reliance on future autonomy developments pose risks to margins, revenue growth, and earnings.

Catalysts

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

• Expansion of Tesla's Full Self-Driving (FSD) capabilities, including plans to launch unsupervised FSD as a paid service, indicates potential for significant new revenue streams and improved utilization of the vehicle fleet, potentially increasing overall revenue and profitability.
  
• The anticipated ramp-up in Optimus humanoid robot production, with plans to move from thousands to potentially millions of units annually, suggests a significant future revenue source that could dramatically impact earnings once the robot's utility and demand become widely recognized.
  
• The increase in manufacturing of stationary battery storage solutions, supported by new factory operations, is set to address growing energy storage demands, which could substantially boost Tesla's revenue and margins in the energy sector over the coming years.
  
• The introduction and scaling of the Tesla Semi production are expected to meaningfully contribute to revenue, especially as autonomy is integrated, potentially lowering operating costs and enhancing margins compared to traditional trucking solutions.
  
• Strategic investments in AI, manufacturing, and energy infrastructure, such as the Cortex training cluster and new factory builds, are expected to lead to efficiency improvements and cost reductions, potentially boosting net margins and earnings as the technologies mature and are deployed at scale.

Tesla Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tesla's revenue will grow by 16.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.3% today to 9.2% in 3 years time.
• Analysts expect earnings to reach $14.3 billion (and earnings per share of $4.55) by about March 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 $6.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 106.9x on those 2028 earnings, up from 100.2x today. This future PE is greater than the current PE for the US Auto industry at 18.2x.
• 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 10.39%, as per the Simply Wall St company report.

Tesla Future Earnings Per Share Growth

Risks

• Tesla's aggressive manufacturing changes, including retooling all factories for the new Model Y simultaneously, could result in several weeks of lost production and impact margins due to idle capacity and ramp-related costs, affecting net margins.
  
• Lower automotive margin in Q4 due to reduced ASPs and discounting strategies indicates potential vulnerability to competitive pricing pressures, which could impact revenue and net margins.
  
• Battery pack supply constraints could limit production and deliveries, thereby constraining growth and impacting revenue and overall earnings.
  
• Heavy reliance on assumptions of future autonomy developments presents execution risk, particularly if regulatory approvals or technical challenges delay FSD rollout, potentially affecting revenue from FSD and impacting net margins.
  
• High R&D expenses focused on AI initiatives could put pressure on operating expenses; if anticipated returns from autonomy and Optimus do not materialize as expected, this could adversely affect net income.

Valuation

• The analysts have a consensus price target of $344.821 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 $550.0, and the most bearish reporting a price target of just $135.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $154.8 billion, earnings will come to $14.3 billion, and it would be trading on a PE ratio of 106.9x, assuming you use a discount rate of 10.4%.
  
• Given the current share price of $222.15, the analyst price target of $344.82 is 35.6% 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.