The day after a lackluster fourth-quarter and full-year 2023 earnings report, Tesla (TSLA -1.71%) shares slid 12% on Jan. 25, and currently remain more than 50% off of highs. With macroeconomic headwinds forming and limited growth in the electric vehicle industry expected in the near term, Tesla investors are having to readjust expectations for the first time in a while.
But not popular investor Cathie Wood. Treating the sell-off as a buying opportunity, the funds of the Ark Invest CEO scooped up around 377,000 shares, good enough to bring Ark’s total position up to a value of $796 million and around 6% of its entire portfolio.
While Tesla’s success in the electric vehicle industry aligns perfectly with Ark Invest’s strategy of investing in disruptive and innovative companies, it probably isn’t why Wood went on the recent buying spree. The real reason boils down to one thing: artificial intelligence (AI).
As Wood plainly put it in a November 2023 interview on CNBC, Tesla is the “biggest AI play” on the market today. But what does that really mean? With a deeper exploration, it becomes abundantly clear why Wood and other AI enthusiasts are so bullish on Tesla, CEO Elon Musk, and the company’s various AI frontiers.
The taxis that drive themselves
Wood’s enthusiasm regarding Tesla’s AI future is primarily related to autonomous driving. Even though the technology has yet to completely replace drivers, Tesla achieved a major breakthrough in 2023. Previously, Tesla software engineers would code in responses for vehicles to make, but now the vehicle’s course of action is determined by artificial intelligence neural networks that learn to drive just like you and me. The breakthrough holds the potential to scale development of the full-self driving software much faster and efficiently since humans are no longer needed to hardcode individual responses.
Once full autonomy is reached, a reality Musk sees happening by late 2025, Musk aims to launch a robotaxi business where users can hail rides from self-driving vehicles. Citing what he has called “quasi-infinite” demand, Musk believes the successful launch of a robotaxi fleet will be a moment talked about 100 years from now. While at times eccentric in his thinking, Musk isn’t alone in the belief that robotaxis could transform society and spur financial growth for the company.
Conducting a Monte Carlo simulation that used computer algorithms to predict a range of potential outcomes based on mix of possible variables, analysts from Ark Invest attempted to quantify the impact a robotaxi business could have on Tesla’s bottom line. Based on the results, Ark Invest projected in April 2023 that robotaxis could eventually account for 44% of total revenue and help push the company past the $1 trillion revenue mark, nearly a 4,000% increase from today. Should that estimate become reality, Tesla could reach $2,000 per share, a far cry from current prices of around $190.
These numbers may sound astronomical, but that doesn’t mean they should be dismissed. One of the primary reasons Wood and her team think robotaxis could generate significant revenue lies in the assumption that a robotaxi business would operate similarly to software-as-a-service (SaaS) products.
Like SaaS business models, Tesla’s primary expense with a robotaxi fleet would be maintenance and upkeep of the software. With a lack of expenses related to hardware or materials, Tesla’s robotaxis could achieve SaaS-like margins of greater than 75%.
Building the robot of the future
While Wood thinks that robotaxis hold the most potential for Tesla in the near to mid term, she hasn’t yet ruled out the long-term potential that its humanoid robot, Optimus, could bring in the future.
Optimus is primarily designed to take over hazardous or repetitive tasks that are currently performed by humans and holds the potential to disrupt labor markets across several industries. With plans to implement the robot in Tesla factories and test its capabilities on the EV assembly line, Musk expects that with continued refinement, Optimus will be available for purchase by customers in 2025.
As with autonomous driving technology, there is still room for improvement, but advancements are progressing. In October 2023, Tesla unveiled the newly revamped second generation of Optimus, which moves 30% faster, boasts more fluid body control, has tactile sensing on all fingers, and weighs 20 pounds less.
With the humanoid robotic market projected to grow from $1.8 billion to more than $13.8 billion by 2028, the successful development of Optimus could expose Tesla to another lucrative source of revenue. Should the current trajectory be maintained, Musk has said he foresees a day when Optimus accounts for the “majority of Tesla’s long-term value.”
Tesla’s secret weapon
Wood’s optimism for Tesla’s AI future goes deeper than just the results of a Monte Carlo simulation or Musk’s wishful thinking. Unlike other companies developing AI business models, Tesla has a secret weapon that gives it an advantage: its supercomputer Dojo.
Developed in-house by Tesla engineers, Dojo provides the computing power to process millions of hours of driving data from its vehicles around the world. Designed specifically for AI applications, Dojo is then used to train visual AI models used in self-driving software.
Since its official revealing in August 2021, Dojo’s capabilities have only increased with time, a trend that will likely continue. Musk intends to make Dojo the most powerful supercomputer in the world by Q4 2024, with plans to invest more than $1 billion into its development in the next year.
Recognizing Dojo’s importance and growing capabilities, Wood believes that the supercomputer “will increase the odds that Tesla will be the first to roll out a nationwide autonomous taxi platform.” Only time will tell, but on its current trajectory, and given Musk’s track record of following through on goals (even if deadlines are overly ambitious), the stars are aligning for Tesla to become the global leader in AI.