Let’s end the suspense. If you’d invested $10,000 in Tesla 10 years ago, you would have an incredible $215,600 at recent prices, an annualized growth rate of nearly 36%.
Tesla (TSLA -5.40%) is the second-best-performing “Magnificent Seven” stock over the last decade, behind only Nvidia, and its return over the period is a reminder of how much value CEO Elon Musk’s company has generated for investors. The question is whether that can continue into the next decade.
The next move forward for Tesla
A decade ago, an investor might have contemplated investing in Tesla based on a belief that it would establish itself as the premier electric vehicle (EV) company in the world and the EV market establishing itself as the future of transportation. Both things happened, and Tesla is now the clear market leader in the U.S.
While it’s no secret that EV sales growth has slowed, EVs are still the future of the industry, and no other company has anything like Tesla’s scale in the U.S. EV market. For example, Tesla has reduced its cost per vehicle to below $35,000 from above $38,000 at the start of 2023 — a key consideration in an industry often criticized for cost to consumers.
In addition, Tesla has plenty of stock price catalysts in 2025, including its new model Y (the original Y is the best-selling EV in the world). And according to CFO Vaiibhav Taneja, “We are still on track to launch a more affordable model in the first half of 2025.” And then there’s the “robotaxi” offering.
Tesla’s Cybercab
The next step, and one that will decide Tesla’s future, is autonomous vehicles, specifically its robotaxi offering, Cybercab. Tesla says it will launch this year in Austin, with volume production beginning in 2026.
Image source: Getty Images.
ARK Invest’s Cathie Wood is a longtime Tesla bull with a $2,600 price target on the stock for 2029 — almost 10 times more than today’s price — primarily based on confidence in the Cybercab. It strikes me that sharing her conviction requires less of a leap of faith than you would have needed to take a decade ago. Musk’s company isn’t a junior player in the auto market anymore; it’s the leader in the growth part of it.
To put the importance of the Cybercab into perspective, let’s flesh out ARK’s valuation model, which assumes 88% of Tesla’s enterprise value (market cap plus net debt) in 2029 will come from robotaxis and just 9% from EVs. That roughly equates to price assumptions of $2,288 from robotaxis and just $234 from EVs. As such, you could argue that the recent share price around $259 is pricing in just $25 a share for the robotaxi/Cybercab, at least according to ARK’s model.
The inference is clear. The bull case for Tesla isn’t as a car company; it’s potentially a business with a long-term stream of income from selling full-self driving (FSD) and profit sharing from miles driven of Cybercabs.
Image source: Getty Images.
Don’t forget that Tesla contains risk
Naturally, there are risks to this thinking. First, Tesla doesn’t have the best track record of releasing technology on time. Back in 2019, Musk told investors to expect a fleet of 1 million robotaxis the following year. In 2022, Musk discussed the robotaxi on an earnings call and told investors, “We aspire to reach volume production of that in 2024.” And last year, he said he expected the Cybercab to be in production “before 2027.”
Second, as noted above, the overwhelming value in the company lies in a product/technology that hasn’t been released yet, and FSD and Cybercab’s contain high-profile risk of any failure being media amplified. Meanwhile, rival service Waymo has been offering autonomous rides for almost five years already.
Third, Musk’s role cutting government spending has made him a politically divisive figure. That may have already had an impact on the company’s brand, as sales across continental Europe have fallen sharply. The recent first-quarter production and deliveries decrease (Tesla sells directly to the consumer so, unlike traditional automakers, its deliveries data is its sales) is not good news and also raises questions.
Tesla produced 26,000 more vehicles than it delivered in the quarter, implying an inventory build. However, both production and potentially deliveries are being impacted by the shift in production to the new model Y in the quarter. Moreover, it isn’t being delivered in some countries just yet. For example, the UK will receive the new model Y in May.
Fourth, ARK’s model contains a host of assumptions that may not come true, such as significantly reduced battery costs, cost per mile, and robotaxi adoption/regulatory approval. In short, a lot of things need to go right for Tesla to hit ARK’s price target.
Image source: Getty Images.
The next decade
Musk has given a specific time and place for the robotaxi/Cybercab launch: Austin, Texas, in June In addition, investors are hoping the new Y model sells well and a low-cost model is released and gains traction — Tesla needs to retain its market leading position in EVs in the U.S.
As for ARK’s model, it contains many assumptions that may not come true to make the $2,600 target feasible, but as noted above, according to the model, the market isn’t pricing in much for the robotaxi. That could change with a successful launch, but it’s understandable if investors wait to see if that happens on track. In addition, investors will want to see the disappointing delivery data for the first quarter naturally rectify in the second quarter as inventory hopefully turns into deliveries.