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The day after a lackluster fourth quarter and full-year 2023 earnings report; tesla (TSLA -2.38%) The stock fell 12% on January 25th and currently remains down more than 50% from its high. For the first time in a while, Tesla investors are having to readjust their expectations, as macroeconomic headwinds and electric vehicle industry growth are expected to be limited in the near term.
But not popular investor Cathie Wood. Seeing the decline as a buying opportunity, the Ark Investment CEO’s funds piled up about 377,000 shares, enough to bring Ark’s total position to $796 million, or about 6% of its total portfolio.
Tesla’s success in the electric vehicle industry is perfectly aligned with Ark Invest’s strategy of investing in disruptive and innovative companies, but that’s probably not the reason for Wood’s recent buying spree. Dew. The real reason boils down to artificial intelligence (AI).
As Wood articulated in a November 2023 CNBC interview, Tesla is the “biggest AI player” in the market today. But what does that actually mean? Digging deeper, it becomes abundantly clear why Wood and other AI enthusiasts are bullish on Tesla, CEO Elon Musk, and the company’s various AI frontiers.
self-driving taxi
Wood’s enthusiasm for Tesla’s AI future primarily relates to self-driving. Although this technology has not yet completely replaced drivers, Tesla has made great strides in his 2023. Previously, Tesla’s software engineers wrote code based on the vehicle’s responses, but now the vehicle’s course of action is determined by a learning artificial intelligence neural network. Drive like you and I do. This breakthrough could potentially scale up the development of fully autonomous driving software more quickly and efficiently by eliminating the need for humans to hard-code individual responses.
Once fully autonomous driving is achieved, which Musk expects to happen by late 2025, the company aims to launch a robotaxi business that would allow users to hail a ride from a self-driving car. Musk believes the successful launch of the robotaxi fleet will be a moment to be talked about 100 years from now, citing what he calls “quasi-infinite” demand. Despite his sometimes unorthodox thinking, Musk is not alone in believing that robotaxis can transform society and drive financial growth for his company.
Ark Invest analysts used computer algorithms to quantify the impact of the robotaxi business on Tesla’s revenue by conducting Monte Carlo simulations that predict different potential outcomes based on possible combinations of variables. I tried to make it. Based on this result, Ark Invest predicts in April 2023 that robotaxis could ultimately account for 44% of total revenue, increasing the company’s revenue by nearly 4,000% from today and exceeding $1 trillion. I predicted that there would be. If this estimate comes true, Tesla’s stock price could reach $2,000 per share, a far cry from its current price of about $190.
These numbers may sound astronomical, but that doesn’t mean you should ignore them. One of the main reasons Wood and her team think robotaxis have the potential to generate significant revenue is that the robotaxis business is similar to her Software-as-a-Service (SaaS) product. This is based on the assumption that it will be operated by
Similar to the SaaS business model, the main costs associated with Tesla’s robotaxi fleet will be software maintenance and upkeep. Due to the lack of costs associated with hardware and materials, Tesla’s Robotaxis could potentially achieve his SaaS-like profit margins of over 75%.
Image source: Getty Images.
Build the robot of the future
Wood believes robotaxis have the greatest short-to-medium-term potential for Tesla, but he is still unsure of the long-term potential that the company’s humanoid robot Optimus could bring in the future. Not excluded.
Optimus is primarily designed to take over dangerous or repetitive tasks currently performed by humans, and has the potential to disrupt labor markets across several industries. Musk plans to bring the robot to Tesla’s factories and test its capabilities on EV assembly lines, predicting that if it continues to improve, customers will be able to buy Optimus in 2025.
As with self-driving technology, there is still room for improvement, but progress is being made. In October 2023, Tesla announced the new and improved second generation Optimus. It moves 30% faster, boasts smoother body control, has tactile sensors on all fingers, and weighs 20 pounds less.
The humanoid robot market is projected to grow from $1.8 billion to more than $13.8 billion by 2028, and a successful development of Optimus could provide Tesla with another lucrative revenue stream. If the current trajectory holds, Musk said he expects Optimus to one day account for “the majority of Tesla’s long-term value.”
Tesla’s secret weapon
Wood’s optimism for the future of Tesla’s AI goes deeper than just the results of a Monte Carlo simulation or Musk’s wishful thinking. Unlike other companies developing AI business models, Tesla has a secret weapon that gives it an edge: the supercomputer Dojo.
Developed in-house by Tesla engineers, Dojo provides the computing power to process millions of hours of driving data from the company’s vehicles around the world. Designed specifically for AI applications, Dojo is used to train visual AI models used in self-driving software.
Since its official reveal in August 2021, Dojo’s features have only increased over time, and this trend is likely to continue. Musk intends to make Dojo the world’s most powerful supercomputer by the fourth quarter of 2024, and plans to invest more than $1 billion in its development next year.
Recognizing Dojo’s importance and growing capabilities, Wood believes the supercomputer “boosts Tesla’s chances of deploying the first national self-driving taxi platform.” Only time will tell, but given its current trajectory and Musk’s track record of achieving goals (even with overly ambitious deadlines), it seems unlikely that Tesla will become the world leader in AI. The stars are aligned.
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