Tesla: fantasy supercomputer projections boost stock

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Accepting that Tesla shares deserve to trade at nearly 70 times forecast earnings requires belief that it is much more than just a fast-growing car company. Tesla’s interests include solar panels, batteries, robots, a charging network and self-driving cars. The last business induces the most outlandish projections.

Despite the hopes of chief executive Elon Musk, Tesla does not yet have a robotaxi unit. Driver assistance systems, marketed as “full self-driving”, require drivers to keep their hands on the steering wheel at all times. Car sales still account for 82 per cent of Tesla revenues. But just as Apple expanded from hardware to a services business that makes up more than a quarter of sales, Tesla sees a future in which it sells services to third parties.

Wild forecasts reflect Tesla’s success in bending the global car sector to its will. It is the standout pioneer of electric vehicles and has served up three years of profitability. In mid-July, Musk predicted that robotaxis would have “quasi-infinite demand”.

Ark Invest thinks robotaxis could add $613bn in revenue by 2027. This is nearly eight times more than the company reported last year. RBC predicts $871bn in possible robotaxi revenue. Morgan Stanley takes this further by suggesting that supercomputer project Dojo could add $10tn to the company’s total addressable market. As a result, Tesla’s share price rose 10 per cent on Monday.

Total addressable markets are notoriously unrealistic metrics. Uber pinned mobility alone at $5.7tn by adding up all spending on vehicles and public transport. Office-rental company WeWork suggested $3tn.

A TAM projection is no reason to invest in a stock. But Tesla’s ambitions for autonomous driving powered by homegrown artificial intelligence processing could foster a large services unit.

R&D spend has doubled since 2020, reaching $3bn in 2022. It has dipped as a percentage of revenue since Tesla started keeping a closer eye on spending.

The Dojo supercomputer project, which uses Nvidia chips, is far from complete. Musk has suggested it may help cars to communicate with one another — though this is not necessary for autonomous driving. But like Apple, Tesla is developing its own chips, in this case with the goal of improving self-driving capabilities.

Exuberant value forecasts invite ridicule. But if Tesla’s plans succeed, it would create a moat rivals cannot cross.