If we take Elon Musk’s word for it, Tesla (NASDAQ: TSLA) transcends the realm of automakers, transitioning into an artificial intelligence (AI) and robotics entity. This metamorphosis quite naturally complicates the evaluation of the stock’s potential and value, given the absence of substantial AI or robotics revenue streams at Tesla currently.
Image source: Tesla.
An Electric Vehicle Evolution
The core of Tesla’s business today revolves around the sale of electric vehicles (EVs) and an associated energy storage segment, which we amalgamate for this discussion. As free cash flow dwindles and net income declines (excluding the one-time $5.9 billion gain from deferred tax assets in Q4 2024), what unfolds is a narrative of shifting fortunes.
Margins are tapering, reflected in comparisons with GM (NYSE: GM) and Ford (NYSE: F), despite Tesla’s stock commanding a significant premium in terms of its price-to-sales ratio. This augmentation in value bestowed upon Tesla underscores the market’s faith in its AI and robotics ventures.
The Enigmatic World of AI and FSD
Tesla’s foray into the autonomous driving realm with features like Autopilot and Full Self-Driving (FSD) warrants scrutiny. Uncertainty shrouds the adoption rates and profitability of FSD, which currently integrates with Tesla’s automotive operations, painting a modest revenue picture that doesn’t move the needle much for the behemoth that is Tesla.
While the concept of a self-driving fleet powered by FSD tantalizes the market’s imagination, the reality paints a different picture. Legal constraints and operational hurdles cast shadows over the profitability of this futuristic vision.
The Conundrum of Robotics
The aspect of robotics at Tesla adds another layer of opacity to its future trajectory. With a humanoid robot in the works, the market is asked to ascribe value to a product that is yet to materialize, posing questions about its commercial viability.
A Cautionary Tale for Investors
Trading at lofty multiples of sales and earnings, Tesla presents a high-risk opportunity considering its waning core business and the uncertainty surrounding its AI and robotics endeavors. As such, prudence suggests that the stock may not be a favorable investment option at present.
Before delving into Tesla’s stock, one must consider the cautionary tale presented by their financial standing and ambitious new ventures. While the allure of AI and robotics is strong, the underlying risks may outweigh the potential rewards, invoking skepticism about the stock’s viability in the current market conditions.