The company’s Cybercab event was supposed to generate excitement for the company’s future, but shares fell 8% the next day.
Tesla (TSLA 0.62%) Stock prices are down 12% in 2024 despite a raging stock market bull market S&P500 causing the index to rise 23% this year. The company is struggling with sluggish electric vehicle (EV) sales amid growing competition and declining consumer demand across the industry.
But last Thursday, Tesla held its “We, Robot” event, where it unveiled the highly anticipated Cybercab robotaxi, which will be powered entirely by full-self-driving (FSD) software. According to Dan Ives of Wedbush Securities, autonomous driving could represent a $1 trillion opportunity for the company in the long term.
For that reason, Ives recently told CNBC that he thinks Tesla is currently the most undervalued artificial intelligence (AI) stock in the entire market. This is why I disagree.
Tesla’s core activities are going through a difficult period
Tesla delivered a record 1.8 million electric passenger vehicles in 2023, a 38% increase from 2022. While it was a strong result, CEO Elon Musk has long said he would increase production by an average of 50% in the near future want to grow per year. . That goal appears to be in jeopardy as deliveries are not keeping pace.
In fact, Tesla only delivered 1.3 million electric vehicles in the first three quarters of this year down 2.3% year-on-year. In other words, deliveries are on track for an annual decline for the first time since the launch of the flagship Model S in 2011.
Demand appears to be declining across the EV industry at the moment as consumers opt for cheaper gas-powered vehicles amid tough economic conditions culminating in high interest rates. Moreover, Tesla faces a growing competitive threat, not only from legacy automakers, but also from new, low-cost EV producers in countries like China.
Tesla plans to launch its own low-cost model next year, which could sell for as little as $25,000. That could revive the company’s revenue growth.
Electric vehicle sales still account for 78% of Tesla’s total revenue, so while analysts like Dan Ives are focusing on longer-term opportunities like FSD and the Cybercab, it’s hard for investors to see the abrupt slowdown in ignoring the company’s core activities.
Image source: Tesla.
The Cybercab could last for years
Autonomous technologies such as FSD are sub-segments of AI. In fact, Tesla plans to spend $10 billion this year alone on data center infrastructure to train its FSD models. Those data centers will be filled with the same graphics processing chips (GPUs) used to develop AI models like ChatGPT.
Dan Ives isn’t the only one who thinks FSD represents a trillion-dollar opportunity for Tesla. Cathie Wood’s Ark Investment Management predicts the company will generate as much as $1.2 trillion in annual revenue by 2029, with 63% of that coming from FSD and the Cybercab.
Tesla will likely make money with FSD in three ways:
- Sales of the software on a subscription basis to Tesla passenger car owners.
- Licensing the software to other car manufacturers for a fee.
- Creating an autonomous ride network (such as Uber), with Cybercabs transporting passengers 24 hours a day, seven days a week.
Tesla could also sell Cybercabs to the public for around $30,000 each, meaning virtually anyone could buy a fleet of them and start their own taxi company.
This is where things get murky. FSD is still in beta mode, meaning Tesla customers can use it in their passenger electric cars, but they must supervise it and be ready to take the wheel at all times. At the We, Robot event, Musk said the final, unattended version of FSD could be released next year, but he’s been making that promise for almost a decade.
FSD will have to clear numerous regulatory hurdles before Cybercabs are allowed to roam America’s streets freely, and since the vehicle is slated to go into production in 2027, according to Musk, Tesla has a very limited time to get the software ready.
Several AI stocks look like better value than Tesla right now
Tesla has generated earnings per share of $3.56 in the last twelve months and based on the share price of $217.80 at the time of writing, it is trading at a price-to-earnings (P/E) ratio of 61.2. That’s almost double the price/earnings ratio of the Nasdaq-100which is currently 32.1.
It also means that Tesla’s price-to-earnings ratio is at the same level Nvidia‘S. But there’s one problem: Analysts believe Nvidia is on track to grow its profits by 139% in the current fiscal year, while Tesla’s profits are expected to rise. shrink 27% in 2024. In other words, Tesla should be substantial cheaper than Nvidia, at least based on these short-term estimates, implying a potential downside for the EV stock.
Tesla is also significantly more expensive than other leading AI stocks, including Amazon, Microsoft, AppleAnd Alphabet.
Data per YCharts.
In this context, it’s hard to agree with Dan Ives’ suggestion that Tesla is the most undervalued AI stock right now. The FSD software comes with regulatory risks, technological uncertainties, and even competitive threats from other companies like Waymo. As a result, no one today really has enough information to make an accurate prediction about its financial potential several years from now.
That’s probably why Tesla shares fell 8% immediately after the Cybercab reveal. If the company can’t quickly find a way to excite investors, there’s a risk the stock will fall further, bringing its valuation more in line with the Nasdaq-100 and other leading names in AI.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Microsoft, Nvidia, Tesla and Uber Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
