Tesla AI Investment SURGING Ahead of Robotaxi Launch

Introduction

Morgan Stanley recently shared a detailed note on Tesla's evolving business landscape, which highlights key shifts and future potential that investors might currently be overlooking. Notably, Tesla's services revenues have reached 10% of total sales, the company’s China exposure is at its lowest in years, and investments in AI infrastructure have surged by 63% year-to-date.

Increasing Recurring Revenue

Tesla's fleet on roads is approaching 7 million units, transforming the revenue potential significantly. Just as Apple makes a large share of its revenue from services beyond the initial sale of the iPhone, Tesla is also generating substantial revenue from recurring services. This includes Full Self-Driving (FSD) subscriptions, over-the-air upgrades, paid supercharging, insurance, and revenue from non-warranty maintenance services, which are all high-margin software and service streams.

Diminishing China Exposure

China's contribution to Tesla's overall revenue has declined to 18.2%, indicating a strategic shift. Tesla has not yet tapped into many global markets like South America, Africa, and India. As Tesla begins to penetrate these new markets, China’s revenue share is expected to fall further, potentially to around 10% of total auto volume by 2030.

AI Infrastructure Growth

Tesla has significantly increased its investment in AI, with AI infrastructure net assets growing 63% in just one quarter to $ 2.5 billion. Much of this expenditure includes construction in progress and assets not yet in service, suggesting large-scale projects like the AI training cluster in Texas. These investments are crucial for Tesla's transition from an auto company to an autonomous industrial powerhouse.

Valuation Insights

Morgan Stanley reiterates an overweight rating for Tesla stocks with a price target of $ 310. They view Tesla as not just an auto manufacturer but also an AI and robotics leader. Interestingly, their valuation of Tesla's core auto business is just $ 59 per share, which is only 19% of the overall price target. This indicates significant value attributed to Tesla's AI and energy ventures.

Closing Thoughts

Tesla is aggressively investing in AI, making it one of the leading AI companies globally. While investors may currently be fixated on auto margins, Morgan Stanley believes that the real value lies in Tesla's AI capabilities, which the stock market may recognize only once the auto business stabilizes.

Keyword

Tesla
AI Infrastructure
Services Revenue
China Exposure
Recurring Revenue
FSD (Full Self-Driving)
Morgan Stanley
Autonomous Vehicles
Robotaxi
Market Share
Energy Storage
Optimus (Tesla's Robot Project)

FAQs

Q: What is the significance of Tesla's services revenue reaching 10%? A: This indicates a significant shift to recurring high-margin revenue streams, similar to how Apple generates substantial income from services beyond its hardware sales.

Q: Why is Tesla's exposure to the China market decreasing? A: Tesla is expanding into new global markets where it previously had no presence. As sales in these new regions increase, China's revenue share naturally decreases.

Q: How much has Tesla invested in AI infrastructure recently? A: Tesla's AI infrastructure net assets grew by 63% in one quarter, reaching $ 2.5 billion. This substantial investment underscores Tesla's focus on AI and autonomous technologies.

Q: What is the current valuation of Tesla's core auto business according to Morgan Stanley? A: Morgan Stanley values Tesla's core auto business at $ 59 per share, which is 19% of their overall price target of $ 310.

Q: What future potential does Morgan Stanley see in Tesla beyond its auto business? A: Morgan Stanley sees Tesla as a leader in AI and robotics, highlighting its potential in energy storage, autonomous vehicles, and possibly robotic services with projects like Optimus. This broader scope contributes significantly to their price target.