This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Autonomous vehicles and artificial intelligence (AI). Robots. Energy storage. These are the many products promoted by Tesla (NASDAQ: TSLA) to drive future growth for this technology company. Yet, if you look at the financials, the vast majority of this business still revolves around electric vehicles (EVs), and likely will for many years into the future.
This puts Tesla investors in a tricky situation. On the one hand, CEO Elon Musk is promising rapid growth from these new products such as the Optimus Robot. On the other hand, the EV segment is stagnating and actually saw lower deliveries in 2024 compared to 2023. This is likely why Tesla stock is still below highs set in November 2021.
Does that make Tesla stock a buy today? Let's dig into the numbers and figure out where this stock may land five years from now.
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Searching for vehicle delivery growth
Tesla's growth in EVs has stagnated. Deliveries to customers grew from 500,000 in 2020 to 1.8 million in 2023, but actually fell to 1.79 million in 2024. This is in spite of the company significantly lowering the average selling prices for new vehicles in order to catalyse demand. EV sales have slowed down in the United States while Tesla's market share of the automotive market has started to move in the wrong direction in the United States, Europe, and China.
Competitors such as BYD are not having this issue. The Chinese EV maker hit a record 4.27 million deliveries in 2024, more than twice Tesla's deliveries. BYD does not sell in the United States but is dominating the Chinese market and moving internationally. Tesla is looking to regain its leadership with an updated Model Y vehicle as well as the Cybertruck, although the Cybertruck does not seem to have caught much of the customer demand that investors expected.
In 2025, Tesla is guiding for deliveries to grow again, but did not specify how quickly. It will likely be below the 50% annual growth previously promised to investors. Track this metric closely to determine how well Tesla's core business is doing in 2025.
AI, Cybercab, and robots
The exciting part about Tesla's business — and why the stock is up 75% in the past year — is its promised product pipeline. This includes all the hottest trends of the day. It is currently working on the Cybercab, which is a purpose-built self-driving taxi set to go into production in 2026. If successful, this vehicle could help Tesla compete with Waymo, which is growing its robotaxi network rapidly around the United States.
Which leads to Tesla's second big investment: AI and autonomous vehicle software. The company has promised to invest billions of dollars into AI infrastructure and self-driving software technology. This will help improve the value proposition of its vehicles sold to customers while also powering the Cybercab for its possibly forthcoming Cybercab taxi network.
Lastly, we have the Optimus Robot, an ambitious science project and a departure from vehicles and energy generation. It is unclear when this product will come out as it still has many technical developments, but Musk believes it could make Tesla worth $25 trillion someday.
TSLA Free Cash Flow data by YCharts
Beware the dangling carrot
All these forthcoming products sound exciting. A $25 trillion opportunity? Wow, Tesla stock could be a great buy today. This is true if you take Tesla and Musk's statements at face value. I think investors should be a tad more sceptical.
Musk has a long history of dangling a carrot in front of investors, promising future riches. Sometimes, these promises work out. Other times, not so much. Back in 2016, Musk said that Tesla cars would all be self-driving within a few years. That was almost 10 years ago now and still hasn't come to fruition. Investors can have excitement around the potential of AI, the Cybercab, and the Optimus Robot, but don't think these are guaranteed to succeed.
The problem is, Tesla's stock is priced like they will. It has a market cap of $1.1 trillion and generated just $3.6 billion in free cash flow over the past 12 months. That is a 300 times free cash flow multiple, indicating that investors are pricing in a huge growth in profits over the next five to 10 years. With this in mind, I think it is unlikely that Tesla stock will be much higher five years from now, making it a stock investors should avoid right now.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
