At first glance, it seems odd that the shares of Tesla (TSLA -0.25%) are down more than 50% from their all-time high. Sales of electric vehicles (EVs) were at record highs in 2023, and the company is producing more cars than when its stock was at more than $400.
This means that we can essentially rule out its production as the main catalyst for its stock growth, especially considering that its shares have been in decline for the better part of two years.
To truly figure out what it will take for Tesla to double in the next five years, we need to do some digging. And in doing so, it should become clear that the company has what it takes to reward investors.
Tesla EVs. Image source: Getty Images.
Tesla's EV problem
The biggest difference between Tesla today and when its stock was near all-time highs is its gross profit margin. In 2021, margins hovered around 30%. Today, they are just above 17%.
This steep decline comes down to two reasons. First, in response to higher interest rates stifling consumer demand, Tesla cut its prices, lowering profit margins.
The second factor has been increased costs. Over the last two years, Tesla's expenses have nearly tripled, mostly because of higher costs of goods sold.
While Tesla has shown improvements in this area, the cost of goods sold increased dramatically when inflation was at its peak as raw material prices and labor costs skyrocketed in 2021 and 2022, while supply chains slowed. But there has been notable progress as the cost of goods per vehicle sold declined sequentially over the last six quarters.
Should inflation keep cooling, interest rates come down (which should kick-start demand for EVs again), and the cost of goods sold keep improving, Tesla should be able to pad profit margins once again. If it can do so, it should increase its chances of doubling in the next five years, as Wall Street focuses on profit margin, a key metric.
TSLA total expenses (quarterly); data by YCharts.
The next chapter in Tesla's story
There is one other factor that could help Tesla double by 2029: artificial intelligence (AI). It could be a stretch to say the company is putting all its eggs in the AI basket, but it wouldn't be totally incorrect. To nearly guarantee its stock can double over the next five years, the company needs to successfully launch at least one, or hopefully all, of its cutting-edge technological endeavors.
Timelines and Tesla haven't historically mixed well; the company is notorious for pushing back release dates. But the two most likely AI endeavors to be launched are its autonomous vehicles and its humanoid robot, Optimus.
Beyond EVs, achieving autonomous driving has been the primary focus for Tesla, and for good reason. If it can solve this challenge and eliminate the need for drivers, the company plans to launch a robotaxi service.
CEO Elon Musk envisions this venture as having "quasi-infinite demand" and, by some projections, could potentially more than triple the company's revenue. While fully autonomous driving is not yet a reality, Tesla has scheduled Aug. 8 as the day it will unveil its latest advancements in this technology.
Then there is Optimus. It has made real progress over the last year and is beginning to be used in Tesla factories. Musk claimed that it could hit the market by 2025, and if all goes according to plan, the company could eventually earn $1 trillion a year as the market and the technology mature.
A final word
For the first time in a while, Tesla's immediate future looks a bit unclear. To rise to its previous levels of success, and double its share price from current levels by 2029, it will need to regain its footing in EVs. Optimism would say that this should resolve naturally as macroeconomic factors improve and EV adoption continues to grow. But there's no telling when this could be.
Then there are the AI efforts. Whether it's with robotaxis, Optimus, or both, Tesla's successful accomplishment of its AI goals would undoubtedly give the company the boost it needs to double its stock price in the next five years. However, it will take a herculean effort.
This isn't to say it won't pull it off. Don't forget that Tesla was once unprofitable and transformed itself into the most successful automaker in the world.
But creating the underlying AI that powers a robotaxi fleet and humanoid robots is more challenging. Fortunately, it does seem that Tesla is on the right track. Its supercomputer, Dojo, which powers the computational side of training its AI models, has more than doubled its computational capacity in just 2024.
Only time will tell, but if there's any company out there with what it takes to do so in the next five years, Tesla is the one. For those with an appetite for risk and time on their side, there are few other companies that offer investors true exposure to the technologies of tomorrow.
