Tesla’s (NASDAQ:TSLA) future growth story has captured greater attention in recent times, sparking optimism that contributed to the stock’s impressive performance, especially in the latter half of last year.
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The Robotaxi’s potential has particularly caught the imagination. With plans to launch the service in 2025, Bank of America analyst John Murphy estimates its valuation could reach $420 billion in the U.S. and exceed $800 billion globally.
While the initial roll-out is expected to be slow, with higher per-mile costs at first, once scaled, Murphy thinks it will have a significant cost advantage over Uber and Lyft, with costs of $1.58 per mile compared to the typical rideshare cost of $3.41, thanks to the absence of a driver.
“With this sizable cost advantage, TSLA’s robotaxi service could offer rides at a much lower price to the consumer and still have higher margins,” the analyst went on to say.
Meanwhile, Tesla’s Full Self-Driving (FSD) software adds another layer to its growth potential. Currently in the early stages of monetization, Murphy values this segment at $480 billion. Having personally tested the software, the analyst highlighted its impressive capabilities. Adoption has risen sharply, climbing from 22% in Q1 2023 to nearly 60% among Cybertruck buyers in 2024. Murphy forecasts that 23 million Tesla vehicles will be FSD-capable by 2030, with that figure expanding to 75 million by 2040. FSD should also deliver significantly higher margins compared to Tesla’s core auto business, potentially generating billions in annual EBIT.
Looking ahead, several catalysts could further accelerate Tesla’s growth. These include the launch of a low-cost vehicle in the first half of 2025, followed by another new model in the latter half, both serving as major drivers of volume growth. Additionally, production ramp-ups at Tesla’s Shanghai Megapack assembly plant are underway this quarter. Further updates on FSD subscriber growth and the mass production of Tesla’s Optimus robot, targeting 1,000 units by the end of 2025, are also on the horizon.
However, it’s not all smooth sailing. According to Murphy, while these potential catalysts are promising, execution risks remain high, and Tesla’s valuation – a frequent topic of debate – continues to raise eyebrows.
So, with this in mind, Murphy has now downgraded his Tesla rating from Buy to Neutral. It’s a curious take, however, as at the same time, the analyst raised his price objective from $400 to $490, with the new figure making room for 12-month returns of ~21%. (To watch Murphy’s track record, click here)
The Street’s average target is less ambitious; at $323.56, it suggests TSLA is overvalued by ~20%. All told, based on a mix of 13 Buys, 12 Holds, and 9 Sells, the consensus views this stock as a Hold (i.e. Neutral). (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
