With shares already down by 24% in 2024, Tesla (TSLA +2.40%) has started the new year on a poor footing. The company's ongoing challenges were laid bare in its fourth-quarter earnings call, where management outlined a bleak outlook for growth and margins amid rising competition from low-cost Chinese rivals like BYD.
But while Tesla's near-term prospects are grim, what does the future hold? Let's discuss some trends that could evolve over the next decade and possibly make or break the company.
NASDAQ: TSLA
Key Data Points
Can Tesla's automotive business be saved?
Over the next ten years, Tesla's success will depend on protecting its market share from a growing list of Chinese rivals. BYD is likely the biggest threat because of its high level of vertical integration. The Chinese rival not only manufactures its batteries, but also owns stakes in lithium mines to ensure a steady supply of low-cost raw materials.
According to Reuters, a battery accounts for around 40% of a new electric vehicle's (EV) price. And over the coming years, Tesla will need to pay serious attention to this side of the industry if it wants to stay competitive.
In May, the company broke ground on its first in-house lithium refinery in Corpus Christi, Texas. The over $1 billion project could help expand the company's access to battery-grade lithium.
Elon Musk calls lithium refining a 'license to print money' (although this will probably depend on supply and demand). And he expects the new facility to produce enough battery-grade lithium for 1 million EVs by 2025. For context, Tesla produced 1.85 million cars in 2023, so this project could bring substantial virtual integration to the company.
Consider the other growth drivers
While investors must wait for Tesla's automotive business to possibly regain its mojo, the company has several other growth drivers that could rise in importance over the next decade. These include self-driving cars, a subset of artificial intelligence (AI) that experts at Boston Consulting believe could become widespread by 2035.
Image source: Getty Images.
Tesla is investing in this opportunity through a new supercomputer called Dojo, which will analyze the data generated from thousands of Tesla vehicles on the road with its self-driving software installed.
Over time, these "full-self-driving" (FSD) installations (which cost $12,000 plus a $99 monthly subscription) could become a major source of revenue for Tesla, and possibly be licensed to other automakers. Expanding into AI software could also help create an economic moat around Tesla's business and prevent it from getting trapped in a race to the bottom with BYD and other low-cost Chinese automakers.
Investors should remember, however, that the AI thesis could take over a decade to play out. And Tesla isn't the only company working on self-driving and other autonomous mobility solutions.
Tesla stock is a hold
While Tesla is a resilient company with a track record of overcoming challenges, it is unclear if its vertical integration efforts and other growth drivers will be enough to maintain the explosive stock price growth investors have become used to. And with a forward price-to-earnings (P/E) of 57, shares are quite expensive considering the challenges ahead. Tesla stock looks like a hold until more information becomes available.
