Tesla Makes Money Selling Electric Vehicles, but 86% of Its Earnings Could Soon Come From This Instead

Tesla's Future Strategy - Cathie Wood believes Tesla's future is not dependent on selling passenger electric vehicles but rather on its full self-driving (FSD) software, which she calls the biggest AI opportunity in the world [1] - Ark Investment Management predicts that by 2029, 86% of Tesla's earnings will come from sources other than passenger EVs [1] Challenges in Passenger EV Business - Tesla delivered 1.29 million EVs in the first three quarters of 2024, a 2.3% drop compared to the same period last year [2] - Annual deliveries are on track to shrink for the first time since the launch of the Model S in 2011, despite price cuts to boost demand [2] - Consumer demand for EVs is softening due to high interest rates, lack of rapid charging infrastructure, and declining resale values [2] Competitive Threats - Low-cost manufacturers like BYD are threatening Tesla's market share with EVs priced under $10,000 [3] - Tesla's plan to build a$25,000 low-cost EV has been canceled, leaving the company vulnerable to competitors [3] Focus on Autonomous Vehicles - Tesla's future is in autonomous vehicles, with the unveiling of the Cybercab, a self-driving robotaxi [4] - FSD software is statistically 10 times safer than human-driven vehicles, with one crash every 7 million miles compared to one every 700,000 miles for human drivers [4] - Tesla is investing $11 billion in AI data center infrastructure to further develop FSD [5] Monetization of FSD - Tesla plans to monetize FSD through software sales to EV owners, licensing to other manufacturers, and a driverless ride-hailing network [6] - The Cybercab will be available for purchase at$30,000, allowing individuals to set up their own driverless ride-hailing networks [6] - Software revenue sources could carry high profit margins, potentially exceeding Tesla's current hardware gross margin of 19.8% [6] Financial Projections - Ark predicts Tesla will generate $1.2 trillion in annual revenue by 2029, with FSD and Cybercab accounting for 63$99 billion, requiring a compound annual growth rate of 64.7% to meet Ark's 2029 forecast [8] Market Valuation - Tesla's stock trades at a P/E ratio of 68.5, more than double the Nasdaq-100's P/E ratio of 32.1 [8] - The company's fate will rely on passenger EV sales until the Cybercab goes into mass production in 2026 [9]