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At first glance, it turns out that Tesla (TSLA -4. 02%) inventories are down more than 50% from their all-time high. Electric vehicle (EV) sales hit record levels in 2023 and the company is making more vehicles than when its stock was $400.
This means that we can necessarily rule out that its production is the main catalyst for its inventory growth, especially since its inventories have been low for almost two years.
To really understand what it will take for Tesla to double in the next five years, we want to dig a little deeper. And in doing so, it should be clear that the company has what it takes to praise investors.
The biggest difference between Tesla and when its shares were at all-time highs is their gross profit margin. In 2021, margins were around 30%. Today, they are just above 17%.
There are two reasons for this sharp decline. First, in reaction to emerging interest rates that were stifling customer demand, Tesla lowered prices, cutting profit margins.
The issue of the moment is the expansion of prices. In the past two years, Tesla’s expenses have nearly tripled, mainly due to emerging prices for goods sold.
Although Tesla has shown innovations in this area, the cost of goods sold is higher, especially when inflation is at its peak, with raw production costs and hard labor costs skyrocketing in 2021 and 2022, as supply chains slowed. But notable gains have been made as the cost of goods per vehicle sold has declined sequentially over the past six quarters.
If inflation continues to decline, interest rates fall (increasing demand for electric vehicles), and the price of goods sold continues to improve, Tesla will be able to increase its profit margins again. If it succeeds, its chances of doubling in the next five years, as Wall Street focuses on profit margin, a key indicator.
There’s something else that could help Tesla double through 2029: artificial intelligence (AI). It might be a stretch to say that the company is putting all its eggs in the AI basket, but you wouldn’t be entirely wrong. To almost guarantee that its inventory can double over the next five years, the company will have to effectively launch at least one, if not all, of its next-generation generation projects.
Historically, and Tesla have not combined well; The company is notorious for pushing back release dates. But the two AI projects most likely to launch are its self-driving cars and its humanoid robot, Optimus.
Beyond electric vehicles, autonomous driving has been Tesla’s most sensible priority, and for good reason. If it can solve this challenge and the need for drivers, the company plans to launch a robotaxi service.
CEO Elon Musk predicts that this company will have “almost infinite demand” and, according to some projections, could triple the company’s revenue. While fully autonomous driving is still a reality, Tesla has scheduled August 8 as the day to unveil its latest advances in the technology.
Then there’s Optimus. It has made real strides over the last year and is starting to be used in Tesla factories. Musk has claimed that it could hit the market until 2025 and that if all goes according to plan, the company could earn only $1 trillion a year as the market and generation mature.
For the first time in a long time, Tesla’s future is somewhat uncertain. To return to its past levels of good luck and double its percentage value from existing levels until 2029, it will need to regain a foothold in the electric vehicle. Optimism would say that this will happen naturally as macroeconomic issues improve and EV adoption continues to grow, but we don’t know when that might happen.
Then there are AI efforts. Whether with Robotaxis, Optimus, or both, Tesla’s success in its AI goals would give the company the boost it needs to double the value of its stock over the next five years. years. However, this will require a herculean effort.
That doesn’t mean it may not be a success. Remember, Tesla was once unprofitable and transformed into the most successful automaker in the world.
But creating the underlying AI that powers a fleet of robotaxis and humanoid robots is more difficult. Fortunately, it turns out that Tesla is on the right track. His supercomputer, Dojo, which powers the computational side of education for his AI models, has more than doubled its computing capacity in just 2024.
Only time will tell, but if there is any company that can do it in the next five years, it is Tesla. For those with an appetite for threats and timing, few corporations offer investors genuine exposure to the technologies of tomorrow.
RJ Fulton holds positions at Tesla. The Motley Fool holds positions at Tesla and recommends it. The Motley Fool has a disclosure policy.
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