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Well, first I'm going to give all the credit to the three analysts who are working on Tesla at Arc. And no, our our outlook has not changed. What is going on right now, very short term, the economy is being hit in the US, lots of uncertainty. That's not good for any auto manufacturer. Of course, there's the political dynamic overlay, and I know that the authorities are going after that.
I think that will pass. We also have the Model Y refresh, and we understand that the orders for the Model Y refreshed are going very strongly. I can't I won't get mine for for a very long time. They have a new low-cost car coming in the second quarter, which in the United States I think it could sell for $30,000 or less.
There's pent-up demand for that. So, we've got a lot of rubber band stretching, and maybe And the most important one of all, of course, is robo-taxi. And Elon has announced that that Tesla will launch its robo-taxi service commercially in Austin, Texas in June. That is when analysts are going to have to put into their models what a robo-taxi service is.
And it's a software-as-a-service model. Very high margin, 80% plus for the platform companies. Whereas the electric vehicle is 15, 20, 25% gross margin. So, we think that robo-taxis will account for 90% of the value of the company in 5 years. And we're on record on on record saying we believe in in 5 years the stock will hit $2,600.
And that's that's not even including humanoid robots, which are now moving into the Tesla ecosystem much faster than we than even we expected. So, more than a tenfold increase just from robo-taxis. And you're not concerned over let's let's call it noise because of Elon Musk's role with the government, for example, and how that may or may have not contributed to the risk premium of the stock.
Yes, I think this is one reason the stock is down 50%. It's It's been cut in half. And I think this is all very short term. These are This is criminal activity, and this administration is cracking down on criminal activity. And oh, by the way, Tesla cars have a lot of cameras on them. So, on X, we're getting to see the people who are committing these crimes, and the authorities are going after them.
Surprised to see you've added to your position in Tesla this week. We post our trades at the end of every day, so you can see that we've added to our position. Okay. Is there Do you think One last question on Tesla. Do you think they need to Is there any corporate action you think they should entertain right now to boost the stock, or do you think sentiment takes care of itself?
I I think these launches, the refreshed Y, the low-cost car, and robo-taxi, those three And there is one other thing, and this is more macro comment. We think the economy is getting hit by a lot of of uncertainty. And I think a lot of people are scared for their jobs in the US. Anyone involved with the government, so federal, state, local, or quasi-government in the healthcare and education space, you know, that could be as much as 30% of the labor force in the United States.
And then we've got AI as another layer of uncertainty we're seeing Why Elon Musk's big bet on robotics comes with significant risk for Tesla shareholders. I mean, don't get me wrong, the potential for Tesla's Optimus robot is a massive growth opportunity, but its success is far from a sure thing. Tesla is an electric vehicle stock that trades like a high-powered tech stock, and that's because CEO Elon Musk is able to sell investors on a growth story that goes beyond just EVs.
Elon Musk does see the business as being more of an artificial intelligence and robotics company, and investors have been valuing it as such because everyone likes Elon Musk, or at least they used to for a very long period of time. The company is in the middle of a significant shift in its operations as it looks to invest more heavily on AI, but the greater the move away from its core operations, the greater the risk there can be for Tesla.
While robotics While robots and AI can make for compelling growth opportunities, they can also add a ton of more risk for the stock, and also and also take away potentially more focus away from its EV company. Tesla's business is constantly evolving, and one of the big opportunities Elon Musk sees for the company is in robotics.
Its Optimus robot is a cornerstone of its long-term growth strategy, with its potential being able to perform repetitive and unsafe tasks for humans. The company is planning to stop making Model S and X vehicles, and instead will begin producing robots at a factory in California in the clearest sign yet of how a shift towards Optimus is affecting the business.
This year, Tesla plans to spend $20 billion on capital expenditure, which is up from 8.5 billion just a year ago, focusing on AI, robotics, and driverless technology, and which is part of a broad transformation of the business. Now, I see some risk here. Elon Musk has previously stated that by the end of 2027, the company plans to sell its Optimus robots to the public, believing that by then you can basically ask it to do anything that you would like.
middle management teams actually being let go because of the productivity gains associated with AI. You know, their bosses can handle more and more and more over time. So, that's another source of uncertainty, but we think that is going to play out positively longer term. Technology and breakthroughs in technologies are always associated with new jobs that we can't even imagine.
Right. I want to ask you now Let me Let me Let me pull in the China factor here. Yes. Into the Tesla story. And you know, one of the I think more common observations that we've heard from analysts in this part of the world is that Tesla in China as a final market currently has a somewhat inferior product compared to the competitor.
Is that Is that an argument that you buy? Well, if you look at It depends on what you mean by inferior. So, we're looking at the BYD cars, and they are fabulous in terms of from what we can see, fit, finish, design. If you look at metrics like range and power for a given price, Tesla is still very competitive, if not the most competitive, depending on the model of car.
Right. Right. Right. There's nuance there. Yes, but BYD is from a cost point of view moving down the consumer electronic battery cost curve, just like Tesla is. So, actually, we think it's great. We think competition is great. But more important for new kinds of technologies is scaling those technologies, which both Tesla and BYD are doing.
And when unit growth increases, costs come down even more. So, we think Tesla and BYD are are both in the lead from EV point of view alone. If you layer in robo-taxi, of course, BYD is not seizing the moment there, at least not yet. Okay. I know I said one last question on Tesla. You opened up one door.
Very quickly, worst-case scenario. Let's Let's extrapolate worst-case scenario. In the event that Tesla does not do well in China. In the slightest event it doesn't, for example. And you point out, of course, that they are still very competitive there. Does the bull case still hold up for Tesla if they say lose that market?
We do believe that China is very important to Tesla, and I actually think that Elon Musk and Maye Musk, his mother, are sort of ambassadors for the United States. a big star in China. Yes. Yes. Yes. And rightly so. So, but to answer your question directly, if China were to fail, that would be a short-term hit to the stock.
Would it take us away from $2,600? No, because the robo-taxi story is much more a function of the western world, where ride-hailing costs are so much higher than they are in China. We know in Wuhan, for example, Baidu's Apollo, you know, is facing human taxi drivers that or or taxis that cost 35 cents per mile.
That In in the US, it's $2 per mile. So, that's why we think the robo-taxi opportunity is so much bigger outside of China. You mentioned Baidu. You guys are nibbling. We are. Okay. Why? Tell me why. Well, we had a conversation very recently with Robin Li and his team, CEO. Very We understand how competitive the market is in China for both autonomous mobility and large language models.
But we're looking at how how Robin Li is pushing the envelope. Wuhan is the toughest market in China. He can take learnings from that robo-taxi experience into other markets, even just Beijing in China. So, here's why focusing on robots can be risky for Tesla. Optimus robots are an intriguing growth opportunity for Tesla, but they are not without any risk.
If the company shifts away from EVs, where margins are already being squeezed, and into an uncertain opportunity such as robotics, that could result in business becoming unprofitable again. Investors are already paying a significant premium for the stock, with it trading at nearly 400 times its trailing earnings.
That's going to come with some extremely high expectations. Investors may already be pricing in the success of Elon Musk's growth story and pivot to robotics. The problem is that if it falls short of those expectations, the stock could be due for a significant sell-off. And what's actually stopping Tesla stock from crashing even even as its car business struggles to maintain sales volume, Tesla stock has been doing very well.
Investors have long disagreed about what is the right valuation for Tesla. Despite inconsistent business results, Tesla stock has done well over the past year. It stands 42% higher now than 12 months ago, but that means it sells for 375 times its earnings. Now, that that makes it look far costlier even than the pricey textures like Palantir, which is selling for 229 times earnings or Nvidia, 37 times earnings.
Let alone a car company like GM, which sells at 24 times its earnings. So, what is propping the stock and can it really last in the long term? As well as cars, Tesla has a power generation and storage business that has been performing strongly. It put in a record revenue performance last year, growing 27% to $13 billion.
It also benefits from substantial ongoing ongoing growth opportunities, and I think that could be the case for years to come. When discussing whether Tesla's valuation might be justified, investors sometimes put out that it is more than just a car company and the power business is well-established proof of that.
Still, at around 13% of company's total revenue, it is a relatively small part of the operation for now, and I do not think it is central to the main to maintaining Tesla stock price. Now, what might be maintaining the stock price despite its apparently heavy overvaluation compared to its peers or even explain its rise over the past year despite falling car sales volume, perhaps it is the perception of Tesla as a physical AI company.
Who has that perception of Tesla? Tesla does. I have borrowed its own language in describing what it sees itself as becoming. Tesla reckons it is in transition from being a hardware-centric business. Now, as one might say it, the investment pitch can help explain the current stock price and may even propel it higher with its Optimus robot ambitions and production lines being installed for self-driving taxis.
Tesla's pitch about using its proven software capabilities to melt AI and physical products like vehicle benefit from credibility many new AI rivals may lack. Now, that along with the history of rapid growth despite significant challenges from competition may explain why the price has continued to do well.
It's just because people believe in Elon Musk and his past trajectory. Now, the problem one might see though is that an investment case can only carry a share for so long. Sooner or later, investors will want to see the results, and with $1.3 trillion market cap, Tesla is priced for action, not just talk, and it remains to be seen whether that will materialize. Till then, keep on .
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