Elon Musk's Bold Prediction for Tesla's Future

Elon Musk has made a bold statement to investors, expressing his belief that Tesla will rise to become the world's most valuable company.

Among the leading stocks, often referred to as the "Magnificent Seven," Tesla (TSLA -0.35%) is currently the only one that has not achieved a double-digit return in 2024. As October comes to a close, Tesla's shares have only seen a modest 4% increase this year, despite some spikes in performance at different times.

However, Musk's optimism remains strong. During the third-quarter earnings call, he reiterated his confidence in Tesla’s potential, stating, "I think Tesla will become the most valuable company in the world, and probably by a long shot."

This audacious prediction raises questions about its feasibility. Is it just wishful thinking, or could it actually be reasonable? A closer look at Tesla's growth drivers and future plans may suggest a path to increased valuation.

How can Tesla Supercharge Its Business?

Tesla's current growth primarily stems from its electric vehicles (EVs) and its energy storage solutions. Although the company leads both markets, these sectors alone may not be enough to propel Tesla to the top as the world’s most valuable enterprise.

A key catalyst for elevation could be artificial intelligence (AI). Tesla’s major areas of investment in AI include self-driving technology and humanoid robotics.

Let us explore how advancements in autonomous driving and robotics might significantly enhance Tesla's valuation.

How Will AI Affect Tesla's Valuation?

The development of autonomous driving technology has the potential to revolutionize Tesla's market position. Initially, the obvious advantage is that enhanced self-driving capabilities could encourage more consumers to choose a Tesla over competitors. However, this advancement can lead to benefits that go beyond consumer appeal.

Tesla envisions a fleet of Robotaxis, aiming to operate fleets of driverless vehicles for diverse applications beyond personal use. This includes potential partnerships with delivery services, car rentals, and ride-hailing companies.

The real financial benefit here is not just an increase in vehicle sales if the Robotaxi project is successful; Tesla's autonomous driving software is expected to yield significantly higher profit margins compared to the traditional automotive business. Greater margins would translate into increased net income and free cash flow, leading to a reevaluation of Tesla’s market position.

The combination of software revenue alongside traditional auto sales could elevate investors' perceptions of Tesla, broadening its appeal beyond merely a car manufacturer.

In addition to automotives, Tesla is also exploring the field of humanoid robots through a project named Optimus. Musk believes this initiative has great potential, stating it "has a good chance of being the most viable product that we made.”

Optimus aims to place robots in Tesla's manufacturing sites to aid human workers with repetitive tasks, which should boost productivity and efficiency. Should this initiative prove successful, it opens avenues for Tesla to license the technology to various industries, enhancing their productivity.

Given the novelty of humanoid robotics, successful execution could result in a substantial increase in Tesla's valuation as the company breaks new ground in this frontier.

Is Tesla Stock a Good Investment Now?

A few months ago, Musk made a controversial remark that may have unsettled some investors, suggesting that those who do not believe in Tesla’s AI vision should reconsider investing in Tesla stock.

Musk clearly views Tesla as more than an automaker or green energy provider; he is betting heavily on AI as the core to unify Tesla's diverse offerings. If the ventures into autonomous driving or humanoid robotics do not come to fruition, it could lead to a significant decline in Tesla’s stock prices.

While I find Tesla stock to be a compelling investment, I acknowledge that it comes with inherent risks. Nonetheless, I believe Musk's forecast of Tesla evolving into the world’s most valuable company has the potential to materialize.

Having been a Tesla shareholder for several years, I have no intention of selling my shares anytime soon. I am optimistic about Tesla’s journey, as I believe they are at the forefront of a transformative era. Many of the advantages brought by these technological advancements have yet to be reflected fully in Tesla’s current valuation.

Adam Spatacco has positions in Tesla. The analysis here is not a recommendation to buy or sell any stock.

Elon Musk, Tesla, Stock