Tesla makes money selling electric vehicles, but 90% of its value could soon come from this instead

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Tesla (NASDAQ: TSLA) is already one of the largest electric car companies in the world. But next year, its entire business model may be transformed. That transformation will be driven by a new business venture that some experts believe could add $1 trillion to $2 trillion to Tesla's valuation by the end of 2026. By the start of 2027, Tesla may be better known for this emerging opportunity than it ever was for its car manufacturing business.

Investors are underestimating Tesla's upcoming transformation

Dan Ives, an analyst at Wedbush Securities, is ecstatic about Tesla's new robotaxi service. Cathie Wood, a prominent Tesla investor, believes the robotaxi market globally will eventually be worth $5 trillion to $10 trillion. But it's not just robotaxis that has Ives excited -- it's the intersection of robotaxis and artificial intelligence that holds the most promise.

Tesla's CEO, Elon Musk, hasn't been immune to overly optimistic predictions, with promises of self-driving cars for nearly a decade. In 2016, he predicted that 90% of miles driven by Tesla would be autonomous within three years. In 2019, when that prediction was nowhere close to coming true, Musk doubled down by calling self-driving cars a "solved problem." He said it would only be two to three years before complete autonomy was achieved. In 2023, after that prediction also failed, he called for full autonomy to be realized "this year."

Fast-forward to 2025 and we still lack autonomous driving at any meaningful scale. But rapid advances in AI could change everything. That's because AI is finally enabling reliable safety capabilities for self-driving cars. With AI, autonomous vehicles are rapidly approaching the human accident rate of roughly one accident per every 700,000 miles driven.

After years of heavy investment, Tesla's AI bets may finally be paying off. "We believe Tesla is taking major steps in advancing its AI Revolution path with autonomous and robotics front and center heading into 2026 that will be a game changer and define Tesla's future," Ives told clients earlier this week. "An accelerated AI path for the company is now on the horizon and investors are underestimating the transformation underway at the company."

How big could the robotaxi opportunity be for Tesla long-term? Ark Invest believes roughly 90% of Tesla's value will be tied up in robotaxis by 2029. "While Waymo took the early lead, we believe Tesla's end-to-end vision-only AI, vertically integrated manufacturing, and data advantages position it to dominate in the US, and perhaps globally, during the next few years," the company wrote.

But before you crown Tesla the king of robotaxis, there's one challenge you should understand regarding the company's stock price.

Don't invest in Tesla stock without understanding this one challenge

The robotaxi market should be huge long-term. And Tesla's competitive advantages when it comes to its vertically integrated business model and AI capabilities put it in the driver's seat for growth. Importantly, however, this will be a multidecade opportunity. Despite what Wood and Ives predict, Tesla's financials may not be dominated by robotaxi profits until 2030 or later. The effect of robotaxis on Tesla's stock price, however, is another story.

Right now, Tesla stock trades at an astounding 17 times sales. Fellow EV makers, meanwhile, trade at roughly 3 to 7 times sales. Why the huge premium? Tesla does have impressive name recognition and scale advantages. But it's unique opportunities like robotaxis that keep the stock's valuation high.

This is the problem: Tesla's stock price is already partially accounting for robotaxi growth, even though meaningful growth in that division may take years to materialize. In the meantime, Tesla's stock price may show extreme volatility, driven by shifts in sentiment, not actual fundamentals. So while Tesla's robotaxi opportunity is exciting, investors should prepare for a bumpy and lengthy journey. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.