This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Tesla (NASDAQ: TSLA) stock is worth roughly $750 billion today, but with sales growth slowing and margins compressing as it lowers prices, it's become increasingly clear that much of the company's valuation is related to its AI and self-driving potential, rather than its existing electric vehicle (EV) business.
Ark Invest's Cathie Wood, arguably Tesla's biggest bull, sees robotaxis making up a $9 trillion market by 2030 with Tesla as the leader. Her investment firm believes that Tesla's leadership role will help drive its stock price to $2,000 per share by 2027, representing a gain of nearly 1,000%.
Now, Wood has some company in her bullish long-term forecasts for the EV leader. Goldman Sachs analyst Mark Delaney recently issued a note on Tesla's artificial intelligence (AI) and full self-driving (FSD) opportunities, estimating FSD is already generating $1 billion to $3 billion in annual revenue, and believes the software opportunity for the company, mostly in FSD, would be worth $10 billion to $75 billion in revenue by 2030.
Tesla now charges EV customers $12,000 for FSD or offers it on a subscription basis from $99/month to $199/month, depending on the vehicle's current autopilot system. However, FSD is still in beta, and the company says that the driver should be alert with their hands on the wheel at all times while FSD is being used.
In his note, Delaney said, "We believe that Tesla's software-related revenue could be tens of billions of dollars per year by 2030 (mostly from FSD). These scenarios suggest that in an upside case, FSD could account for tens of billions of revenue per year."
The 2030 Tesla forecast
Delaney also estimated that Tesla's services and other revenue, like the Optimus humanoid robot and supercharger network, could bring in $75 billion to $100 billion in revenue, see $30 billion to $50 billion in energy generation and storage revenue, and $200 billion to $400 billion in vehicle revenue.
In total, Delaney estimates the company will bring in $315 billion to $625 billion in revenue by 2030, with an operating margin between 13% and 22% and earnings per share between $9.84 to $31.91. The base case calls for revenue of $465 billion, operating margin of 16.5%, and earnings per share of $18.08.
That may sound like a bullish forecast, as those are big numbers implying annual operating income near $80 billion, but surprisingly, Delaney isn't particularly bullish on the stock, as his team rates Tesla a hold with a price target of $235, implying flat share price growth over the next year.
The base case above and the price target assume Tesla will reach a terminal value of $800 billion to $1 trillion in revenue by 2040, with a mid-teens operating margin. Forecasting the company's 17 years from now is mostly academic.
Valuation is a problem for Tesla
The biggest challenge for Tesla stock right now is that so much of the company's potential in AI and full self-driving is already baked into the stock price. At this point, Tesla has to succeed in FSD in order just to keep the stock from falling, as the $750 billion market cap isn't sustainable based on the current trajectory of its EV business, with sales growth slowing to single digits and profits falling.
Yes, the company will increase production, and Cybertruck deliveries are expected to begin soon, but overall demand for EVs appears to be waning, and pricing pressure should continue. Delaney's EPS forecast shows how much optimism is priced into the stock now.
Based on Delaney's base-case EPS forecast of $18.08, Tesla is currently trading at a price-to-earnings ratio of 13 based on 2030 earnings, when the EV market is likely to be much more mature than it is now. That valuation is still higher than what most auto stocks trade at today based on current earnings.
Tesla could end up with another breakthrough in full self-driving and robotaxis, but considering the challenges in the EV sector right now, including slowing demand and increasing competition, a lot has to go right for the stock to be a winner from here.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
