Few industries have a clear and drastic growth potential as that of electric vehicles (EVs) right now. By 2030, analysts project that two out of every three cars sold globally will be an EV. For investors looking to give their portfolio exposure to this burgeoning potential, there is one clear option: Tesla (TSLA 2.04%).
Over the years, the company has refined its vertically integrated supply chain, grown its production capacity, and produced some of the most sought-after vehicles on the market. Add it all up, and Tesla has established itself as the premier EV company in the industry. However, it probably isn't for every investor.
The valuation dilemma
Today, Tesla's valuation stands at approximately five times that of the second most-valuable automaker, Toyota. This is evident in the price-to-earnings (P/E) ratio, where Tesla trades at 47 while Toyota is around 7. Even the third most-valuable automaker and Tesla's most prominent challenger in the EV space, BYD, (OTC: BYDDY) has serious room between it and Tesla.
TSLA PE ratio data by YCharts.
This discrepancy highlights what many refer to as the "valuation dilemma." Some analysts believe that if Tesla's stock were to be valued solely off of its EVs, then it would be worth only around $135. While its energy production and storage segment is growing at a healthy clip, it doesn't justify the difference between the base EV valuation and what its stock is worth today, about $185.
What we are seeing is the market's expectations for its alternative projects such as humanoid robots, autonomous vehicles, and robotaxis to eventually bear fruit, even though they are not yet producing revenue.
Beyond EVs: The future of Tesla
Here lies the potential issue of investing in Tesla. While the company will surely continue to benefit from its leading position in the EV market and increasing global adoption of EVs, for the stock to see substantial future returns, it will need to successfully develop and commercialize its transformative technologies.
The good news is that the company is showing progress. Its supercomputer, Dojo, which is responsible for powering its artificial intelligence (AI) future, has doubled its computing capacity in just 2024. And Musk recently revealed that the company will unveil its autonomous vehicle in August and has plans to launch a robotaxi business once full autonomy is reached, an opportunity that could more than double its revenue by some estimates.
Lastly, there is Optimus, its humanoid robot. It has progressed enough that it is currently used in the company's factories to replace humans doing repetitive tasks, and if all goes to plan, it should hit markets in 2025.
Analysts expect that humanoid robots will be more popular than cars one day. By CEO Elon Musk's estimates, these robots could have a potential market worth more than $1 trillion, of which he thinks Tesla could grab a healthy 10% share.
Tesla is for you if...
While there is still clearly progress to be made, the potential impact these technologies could have on society would be monumental -- and they would have a similar impact on Tesla's stock. However, we can't fool ourselves: There is still a relative amount of risk involved. Not to mention that it's no secret Tesla and Musk are often known for optimistic timelines.
This means that the type of investors who are best suited for the stock are those who have a healthy appetite for risk and a long-term investment horizon.
There are few other companies that offer the level of exposure to the cutting-edge technologies of tomorrow like Tesla can. Along with the risk, its blend of EV market leadership and innovative ventures provides a unique opportunity that could yield significant rewards for investors who fit the criteria.
