Electric vehicle (EV) sales are the bedrock of Tesla’s financial fortress, contributing over 81% to the company’s total revenue. With projections to sell more than 2 million units this year, Tesla stands tall among the global titans of EV manufacturing.

Yet, in the eyes of astute technologist Cathie Wood, the future profitability of the revered Tesla stock lies not in EV sales but in the realm of artificial intelligence (AI). Tesla is harnessing the power of AI to craft its autonomous Full Self-Driving (FSD) software, a groundbreaker that has logged billions of miles in real-world testing during its beta phase.

Wood’s brainchild, Ark Investment Management, recently unfurled a fresh suite of financial models hinting that the future revenue engine of Tesla may revolve around a different axis. Propelled by AI, Ark foresees a staggering 86% of the company’s earnings emanating from a source distinct from EV sales.

Image source: Getty Images.

Transitioning Beyond Passenger EV Sales

Skepticism abounded back in 2010 when Tesla made its debut on the stock market. Doubters cast a pall over the visionary CEO, Elon Musk, questioning his ability to conceive, manufacture, and market EVs successfully. Musk silenced the naysayers when Tesla’s Model Y clinched the title of the best-selling car globally in 2023 across all categories.

Nevertheless, Tesla’s core EV business is losing steam amidst softening demand and intensifying market rivalry. The company’s first-quarter 2024 delivery figures amounted to a modest 386,810 vehicles, marking a 9% dip from the previous year. Analysts opine that Tesla might dispatch 2.2 million units in the entirety of 2024, reflecting a mere 22% growth vis-à-vis Musk’s ambitious 50% annual target.

To buoy demand, Tesla resorted to a drastic 25.1% pricing slash throughout 2023, and the downward spiral continued with a 9% industry-wide EV price erosion in the initial quarter of 2024. The competitive backdrop is set to intensify further, given the cost efficiency of China’s BYD, which rolled out an introductory EV model priced at a jaw-dropping $9,700. Responding to the gauntlet, Tesla unveiled plans for its own budget-friendly model slated for a 2025 debut, possibly tagged at $25,000.

Despite these strategies, vending vehicles at such price points could shrink Tesla’s profit margins, necessitating diversification into auxiliary revenue streams alongside EVs.

The Era of Robotaxis and FSD Software

Steering towards a grand revelation in August, Tesla is on the cusp of ushering in its robotaxi revolution. A fully autonomous vehicle tailored for ride-hailing akin to Uber, albeit devoid of human chauffeurs, is in the offing. However, the triumphant narrative hinges on the widespread deployment of Tesla’s FSD software.

Musk boasts over 300 billion miles amassed by customers with the latest FSD software iteration, albeit confined to beta testing, necessitating human oversight. Ark, however, exudes optimism regarding FSD’s regulatory green light, buttressed by its commendable safety record to date.

Per Ark’s data findings, Teslas operating in FSD mode register one crash every 3,200 miles on average, in stark contrast to the U.S. standard of one mishap per 192 miles. In essence, an autonomous Tesla could potentially render the American driver 16 times safer.

Revolutionizing Tesla’s Profit Paradigm with FSD

Musk envisions fostering a ride-hailing network within Tesla, operational round the clock to rake in revenue through robotaxi ventures, eliminating Uber’s hefty $16.6 billion payout to its human drivers (its foremost expense in the recent quarter). By negating this cost, Tesla’s ride-hailing service could potentially yield hefty profit margins.

Besides, Tesla is poised to market FSD software on a subscription basis to its EV clientele while contemplating licensing agreements with other auto manufacturers. The software-as-a-service segment often yields lofty gross profit margins, sometimes soaring as high as 80%, heralding a transformative juncture in Tesla’s financial trajectory amidst the escalating EV price wars.

Ark’s crystal ball forecasts a colossal haul of $1.2 trillion in revenue for Tesla in 2029, with the lion’s share (63%) emanating from the robotaxi realm alone. EV sales are anticipated to recede to a mere 26% of the total revenue pie, a marked shift from the current 81% stronghold.

This seismic transformation could galvanize Tesla’s fiscal landscape, yielding a towering $440 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA) come 2029, according to Ark’s meticulously crafted prognostications. An awe-inspiring 86% of this bounty is anticipated to stem from the robotaxi sphere.

Evaluating Ark’s Bold Projections

Wall Street pundits peg Tesla’s 2024 revenue at a respectable $98.4 billion. Gearing up for Ark’s envisaged annual revenue bonanza of $1.2 trillion by 2029 implies a Herculean task — achieving an average annual growth rate of 64.9% over the interim period.

Remember, Musk himself aspired to see Tesla burgeon by a modest 50% annually in the long haul, a target which Tesla currently falls short of. Ark’s lofty forecasts seem overly optimistic against this backdrop.

Furthermore, Uber boasts a colossal user base of 149 million monthly active patrons on its platform, translating to $72.5 billion in ride bookings over the past four quarters. Even if Tesla upstages Uber to emerge as the globe’s premier ride-hailing service, the lofty $72.5 billion annual booking turnover may fall short of propelling Tesla’s revenue trajectory to the lofty $1.2 trillion pinnacle.

Making a succinct summation, Ark’s financial extrapolations for 2029 may diverge from actuality. Crucially, neither the robotaxi venture nor the FSD software has secured the regulatory nod thus far. Even in the event of approval, the mass adoption requisite to meet Ark’s fiscal prophecies remains an enigmatic variable.

Should One Consider a $1,000 Investment in Tesla?

Before delving into Tesla’s stock, ponder over this crucial factor:

The savvy analyst troupe at Motley Fool Stock Advisor have pinpointed what they discern as the

Unveiling the Unlikely Winners

Imagine a list of the 10 best stocks for investors to buy now… and guess what? Tesla didn’t even make the cut. These ten stocks, however, are poised to deliver staggering returns in the years ahead.

Historical Prowess of Nvidia

Cast your mind back to April 15, 2005, when Nvidia was a part of this revered list. If you had invested $1,000 based on our recommendation, you’d be sitting on a jaw-dropping $775,568 today!

The Stock Advisor Advantage

Stock Advisor doesn’t just offer a blueprint for success to investors; it’s a treasure trove of guidance for building a successful portfolio. With regular updates from seasoned analysts and two fresh stock picks each month, this service has outshined the S&P 500, more than quadrupling the index’s return since 2002.

Exploration Beckons

If you’re curious to uncover these 10 potential gems that could redefine your investment portfolio, venture forth and delve into the possibilities waiting to be unearthed.

The Motley Fool has positions in and recommends BYD Company, Tesla, and Uber Technologies.