According to most demand projections, electric vehicle (EV) stocks have a bright future. One forecast, for example, believes EV sales should comprise nearly one-third of all new car sales in the U.S. by 2030. That’s up from just 3.4% in 2021.
Tesla (TSLA -5.03%) in particular is in a prime position. It’s better funded than the competition. Plus, the company has a bigger and more diverse lineup than other EV makers. But there’s one emerging growth opportunity that could allow Tesla stock to help set you up for life.
Tesla is in the driver’s seat for growth in EV demand
It’s not easy to start an electric car manufacturing business. It’s even harder to scale this type of business into something successful. At least 30 EV makers over the last decade alone have either gone bankrupt or faced complete collapse at some point.
It’s already hard to design and launch any product as a start-up. But for EV makers, it’s exceptionally hard. That’s because it typically takes billions of dollars to get a new car to market from scratch. One analyst explains:
Tesla, outside of the Chinese, is kind of the first automaker to start in half a century. Rivian and Lucid are sort of the next two closest of the Western ones. Both of them have eviscerated $10 billion. So it’s interesting to see these other small start-ups who raise $1 billion or $2 billion and they think that’s enough. It’s not even close.Â
Right now, both Lucid and Rivian remain unprofitable. Tesla, meanwhile, has been profitable nearly every quarter for the past five years. With EV demand set to explode over the next five years, Tesla has an enviable capital advantage. That’s largely due to its ability to raise new capital at any time, which it can then reinvest in more manufacturing infrastructure or product development. With a $1 trillion market cap, Tesla can raise $25 billion in fresh cash by diluting existing shareholders by just 2.5%. Keep in mind that Lucid and Rivian’s entire valuations combined are less than $25 billion right now.
So when it comes to taking advantage of EV demand, Tesla is in the driver’s seat. But a completely different opportunity could end up adding significantly more value to Tesla’s stock price over the next decade and beyond.
Image source: Getty Images.Â
One opportunity that could add $1 trillion to Tesla’s valuation
Last month, Elon Musk finally launched a robotaxi service in Austin, Texas, powered by semi-autonomous Tesla vehicles. The launch was years in the making. Eventually, Tesla intends to produce Cybercabs: EVs designed specifically for autonomous taxi services.
While this opportunity is still in its infancy, analysts are lauding the potential impact on Tesla’s business. Cathie Wood, CEO of Ark Invest, thinks the move will kick-start a global robotaxi market that could dwarf Tesla’s current valuation. “We think US$8 [trillion] to US$10 trillion for the entire autonomous taxi opportunity throughout the world, from almost nothing,” she told investors at a conference in March. She thinks 90% of Tesla’s market cap will eventually be attributed to its robotaxi division. Her price target for the stock is $2,600 per share within five years.
Wood is known for her aggressively optimistic projections. And as analyst Dan Ives stresses, there will be “many setbacks” along the way. But the opportunity for Tesla is undeniable. Due to its capital and scale advantage, it’s perhaps the only current EV maker that can think this big. Alphabet and Amazon have their own fledgling robotaxi divisions. But Tesla’s existing scale, reputation, and product know-how gives it an undeniable edge. Ives believes that the robotaxi opportunity alone could add $1 trillion to Tesla’s market cap by the end of 2026. That suggests more than 100% in near-term upside, with plenty of additional runway in the years to come.
To be clear, the full robotaxi opportunity will be a story measured in decades, not quarters. But the growth opportunity is clear, and Tesla remains in the driver’s seat, making the stock an attractive “buy it for life” investment.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Tesla. The Motley Fool has a disclosure policy.
