Tesla stock (TSLA) has continued to surge, with a 2% increase on Wednesday and a total gain of over 10% since the beginning of the week. The positive sentiment surrounding the stock can be attributed to factors such as the possibility of lower interest rates and reports of electric vehicle (EV) incentives in India. However, it seems that Tesla’s non-automotive ventures are also catching the attention of investors, particularly in the long term.
Goldman Sachs analyst Mark Delaney and his team recently released a note titled “Contextualizing Tesla’s AI and FSD opportunities,” in which they updated their outlook on the market for software products and services related to hardware, artificial intelligence (AI), and data. They attempted to model Tesla’s business based on these factors.
One notable finding from the team’s analysis is that Tesla’s Full Self-Driving (FSD) software, which is still in beta testing, is already estimated to generate annual revenue of $1 billion to $3 billion. Tesla offers its FSD software for an upfront fee of $12,000 or a monthly subscription of $199.
Delaney believes that the market opportunity for software like FSD could reach $10 billion to $75 billion in annual revenue by 2030, thanks to Tesla’s growing fleet of vehicles. This is a remarkable figure considering that Tesla’s total revenue for 2022 was $81.5 billion.
Delaney’s projections for Tesla’s various businesses in 2030 suggest that, excluding vehicles, the software segment (mostly FSD) could be worth $10 billion to $75 billion, services and other revenue (including Optimus humanoid and the Supercharger Network) could range from $75 billion to $100 billion, and energy could contribute $30 billion to $50 billion.
Goldman Sachs’ EPS projections for Tesla in 2030 range from $9.84 to $31.91, depending on the low, mid, or high scenarios. This is a significant increase compared to Tesla’s full-year EPS for 2022, which was $4.03.
Despite these positive projections, Delaney and his team maintained their Hold rating on Tesla stock with a price target of $235. Achieving the projected metrics would require Tesla to generate revenue of $800 billion to $1 trillion by 2040, with a mid-high teens EBIT margin.
Delaney predicts that a global auto market of 100 million units per year by 2040, with Tesla selling 15 million units annually, would help reach this valuation and potentially provide room for further growth.
However, there are risks to Delaney’s forecast, including the possibility of price reductions, increased competition in the EV market, operational risks, and delays in key product development, such as batteries and software like FSD.
Currently, FSD is still in beta testing, as there are still improvements to be made. Additionally, Tesla is facing investigations by safety regulator NHTSA and the Department of Justice regarding the capabilities of the software and Tesla’s marketing of it to the public.
While there are challenges ahead, Goldman Sachs’ optimistic outlook for Tesla’s non-automotive businesses is starting to take shape, at least in terms of investment potential.
