Why Tesla Will Be a Top Position in My Portfolio

Discussing the Newest Addition to My Portfolio Tesla (TSLA).

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Tesla: The Largest Contributor to Humanity’s Future Productivity

Tesla (TSLA) transcends the label of merely an electric vehicle (EV) manufacturer; it is, at its core, an energy innovator. Under Elon Musk's visionary leadership, TSLA is redefining our relationship with energy, making EVs a pivotal component of a much broader mission. This strategic positioning emphasizes TSLA's commitment to revolutionizing energy consumption and production globally. In the competitive EV sector, TSLA has emerged as a standout performer, capturing a 19.1% share of battery-electric vehicle sales last year, an increase from 18.2% in 2022. This growth places TSLA substantially ahead of its closest competitor, BYD, by about 260 basis points, underscoring its dominance in the market. The company's ascendancy can be attributed to various factors, including its pioneering role in the EV industry and its authoritative brand presence. Yet, it's TSLA's manufacturing expertise that truly sets it apart from the competition.

TSLA has revolutionized vehicle assembly through factory automation and the adoption of innovative technologies like large vehicle castings, which simplify the manufacturing process by reducing the number of parts needed per vehicle. This innovation not only streamlines production but also significantly lowers labor costs. Moreover, TSLA's prowess in producing battery packs—the most costly component of an EV—at a competitive price point gives it an edge. According to Cairn Energy Research Advisors, TSLA's cost leadership in battery production is expected to maintain its momentum well into the decade.

Despite these competitive advantages, TSLA faced economic headwinds that squeezed margins last year, with uncertain prospects for improvement in the near term. However, TSLA is preparing for future growth, focusing on a next-generation vehicle platform slated for production in 2025. This new manufacturing approach aims to cut production costs by 50% and reduce the factory footprint by 40%, potentially enhancing TSLA's profitability (which I think many still don’t understand).

The EV market is on a trajectory of significant growth, with Grand View Research projecting a 15% annual increase through 2030. This expanding market presents ample opportunities for TSLA, not just in vehicle sales but also in software and services, particularly with its Full Self-Driving (FSD) software. TSLA has begun offering FSD subscriptions and is exploring licensing arrangements with other automakers and autonomous ride-sharing services. Although the timeline for autonomous ride-sharing remains uncertain, CEO Elon Musk's ambition to start robotaxi production by 2024 highlights TSLA's commitment to leading in autonomous vehicle technology. The TAM for Tesla's FSD technology is projected to experience significant growth, with estimates suggesting it could reach $2.7T by 2032.

TSLA's advantage is further solidified by its wealth of driving data, collected from its extensive fleet of camera-equipped vehicles, which is instrumental in developing superior machine learning models for autonomous driving. The introduction of Dojo, TSLA's dedicated supercomputer for AI vision systems training, underscores the company's push towards full autonomy. Dojo's performance, reportedly six times better than GPU alternatives, positions TSLA to accelerate its progress in autonomous technology and potentially offer AI cloud services to other industries.

With the autonomous vehicle market expected to grow at a 22% annual rate through 2030, TSLA's innovative strategies in both vehicle manufacturing and technology development underscore its potential as a solid investment. Financial analysts, including Morgan Stanley's Adam Jonas, forecast TSLA's sales growth to possibly exceed 16% annually over the next five years, with even higher rates if its software and service ventures realize their potential.

Optimus Project

TSLA is making strides in the realm of humanoid robots with its Optimus project, a venture that has caught the eye of Goldman Sachs. The financial giant predicts this sector could burgeon into a $150B industry over the next decade and a half. Such an optimistic forecast dovetails with TSLA's own goals to innovate in this space, particularly with robots designed to mitigate labor shortages and provide elderly care. Goldman Sachs even speculates that, given successful navigation of technological, design, and market acceptance challenges, the humanoid robot market might rival the size of the global electric vehicle market by 2035.

In 2021s AI Day, TSLA introduced this concept for a humanoid robot named Optimus. By February 2022, a prototype was showcased, demonstrating its ability to perform tasks like moving a box to a desk and watering plants, as revealed in a prerecorded presentation. Musk suggests Optimus might cost under $20,000, a figure significantly lower compared to initial prices of TSLA's EVs. This cost-effective approach could attract businesses and affluent individuals, given its operational efficiency without the need for rest or wages. Optimus is engineered with a focus on the human form, drawing from TSLA's automotive design insights to optimize production. The goal is to minimize part count and limit the body's movement capabilities to 28 degrees of freedom, excluding the hands, to streamline manufacturing while using TSLA's existing battery production infrastructure. Musk envisions a delivery timeline of three to five years for customers, highlighting an ambitious but potentially achievable goal for the company’s robot development.

TSLA's ventures into growing EV market share, FSD software, and the Optimus humanoid robot project highlight its broadening scope beyond electric vehicles, positioning it as a forward-thinking investment. The ambitious FSD market growth, alongside Optimus's potential to revolutionize labor and personal assistance at a competitive price point, underscores TSLA's innovative edge. Coupled with Elon Musk's visionary leadership and the company's proven track record in manufacturing and AI, these developments signal significant opportunities for market leadership and financial growth, promising substantial returns for investors willing to navigate the associated risks and uncertainties of cutting-edge technology. TSLA is poised to become a leading force, if not the leader, in enhancing societal productivity, marking its position as a transformative entity in the global market.