2024 has been a tumultuous year for Tesla (NASDAQ: TSLA) investors.
For the first six months of the year, its shares drastically underperformed the S&P 500 and Nasdaq Composite as the stock cratered by roughly 20%. Nevertheless, longtime Tesla bull Cathie Wood of Ark Invest recently revised her price target for the EV stock. Wood is calling for Tesla shares to reach $2,600 by 2029 — 1,082% higher than its recent level.
Wood’s Bullish Vision: Autonomous Driving’s Potentials
Tesla is a pioneer among electric vehicle (EV) manufacturers. After making considerable headway over the last several years, the company is now laser-focused on what it expects will be its next chapter — autonomous driving technology.
CEO Elon Musk is so compelled by the potential of autonomous driving that during the company’s latest earnings call he said: “I recommend anyone who doesn’t believe that Tesla will solve vehicle autonomy should not hold Tesla stock. They should sell their Tesla stock. If you believe Tesla will solve autonomy, you should buy Tesla stock.”
In Wood’s latest model, she is projecting that subscriptions to Tesla’s autonomous driving software — dubbed full-self driving (FSD) — will be the major catalyst for the company’s future growth. In essence, FSD represents a source of high-margin recurring revenue for its EV operation.
Moreover, if the company ends up as the superior developer of self-driving technology, Tesla will have an enormous opportunity to disrupt areas such as rental car businesses, delivery services, and ride-hailing applications.
But while I understand the opportunities FSD presents, I think Wood is underestimating Tesla’s long-run potential.
Image Source: Getty Images
The Hidden Gems: Robotics and Energy Storage
Autonomous driving is merely an extension of the EV business. But on a deeper level, FSD is an advanced application of artificial intelligence (AI). While Musk and his team remain steadfast in its FSD pursuits, Tesla has far more ambitions in the broader AI realm.
In particular, it is developing a line of humanoid robots called Optimus. The idea is that it could enhance its efficiency and productivity by augmenting its human workforce with Optimus robots.
Should this effort prove successful, Tesla would have an incredibly lucrative opportunity to commercialize Optimus and sell robots to other companies. This could revolutionize the labor market — and Wood does not seem to be accounting for that potential in her model.
The main reason why Wood isn’t banking much on Optimus at the moment is that she believes commercialization of the robots is more than five years away. However, at the risk of being overly Pollyanna-ish, I think Wood may want to rethink that position. On Tesla’s second-quarter earnings call, Musk said “we expect to have several thousand Optimus robots produced and doing useful things by the end of next year in the Tesla factories.” He further predicted that in 2026 the company would be “ramping up production quite a bit” and selling them to external customers.
Beyond its AI initiatives, Tesla has already built a thriving energy storage business that I think is criminally underappreciated.
The table below breaks down the financial results for Tesla’s energy generation and storage segment over the last several quarters.
| Category | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 |
|---|---|---|---|---|---|
| Energy generation and storage revenue | $1.5 billion | $1.6 billion | $1.4 billion | $1.6 billion | $3.0 billion |
| Energy generation and storage gross margin | 18% | 24% | 22% | 25% | 25% |
Data source: Tesla.
Tesla has doubled its revenues from the energy storage.