Prediction: Tesla Stock Will Be Worth This Much in 2031

Has Tesla (TSLA +0.42%) lost its mojo? If you had invested in the stock shortly after its IPO in 2010 and held onto it until now, you would have earned outstanding returns. But in recent years, the electric vehicle (EV) maker hasn’t been nearly as impressive a performer — case in point: The company’s shares are down 20% year to date. Still, the bulls will point out that there are several opportunities Tesla could exploit over the next five years that could substantially improve its business and allow it to return to its market-beating ways. With that as a backdrop, let’s try to determine how much Tesla might be worth in five years.

The most important catalyst

Tesla’s core business is EVs. The company generates most of its revenue from the sale of its famous cars, especially the Model Y, which has been the world’s most popular vehicle for the past three years. However, Tesla’s value is arguably much more a function of other growth opportunities the market thinks could drive significant earnings and free cash flow growth over the medium term. The most important among them is Tesla’s robotaxi project.

Consider, for instance, that the stock fell sharply after Tesla announced second-quarter EV deliveries that crushed analyst estimates. But it rose in the days leading up to the launch of the Cybercab, a dedicated two-seater designed specifically for Tesla’s robotaxi fleet. The stock then fell after a disappointing Cybercab debut (it wasn’t open to the public and was quickly followed by a federal safety investigation). Let’s put some numbers into Tesla’s robotaxi business to understand why it’s so central to its value and its prospects.

Musk once said that the fleet would reach 1 million vehicles by 2025. That didn’t happen (not even close), but let’s suppose the company can get there by 2031. Further, assume an average of 20 rides per day for $20 each. That’s $400 million in revenue per day, or $146 billion annually. How would that translate into actual profits? With its core EV business, Tesla makes a profit as soon as it sells a car, but it earns relatively little on each vehicle sold thereafter. True, it charges for subscriptions to its Full Self-Driving (FSD) software, but that only brings in $99 per month.

Meanwhile, at the utilization level we are assuming, each car in Tesla’s 1 million robotaxi fleet would generate $146,000 annually, likely several times its manufacturing cost. We have to account for maintenance costs, charging, and other operating expenses. But even if we assume all of that takes half of each car’s revenue, that’s still $73,000 in annual vehicle-level operating profit. So, even without the initial cash infusion from the sale of these vehicles, the economics of Tesla’s robotaxi business could end up being much more profitable than the company’s core EV unit.

Tesla’s trailing-12-month revenue and net income are $103.6 billion and $3.9 billion, respectively. Revenue could more than double through 2031 under these assumptions, while net earnings could increase significantly as well.

A lot could go wrong

Will Tesla actually get to 1 million robotaxis by 2031? Will competition put pressure on per-ride fees or result in very few rides per day, perhaps fewer than 10? What about the regulatory environment? And for that matter, will robotaxi adoption be as significant as Tesla needs it to be for its long-term vision to come to fruition? Those are all important questions to consider before rushing to buy Tesla stock based on the analysis above.

Changing some assumptions, such as the average number of rides per day or the size of Tesla’s fleet, significantly alters the final answer. In other words, there is a wide range of possible outcomes. True, Tesla has other projects, including its humanoid robot initiatives, that might also prove highly profitable down the road. And of course, it should remain a leader in EVs. But then, there are also valuation concerns to consider.

Tesla is currently trading at 154x forward earnings. Even assuming Tesla’s robotaxi project scales fairly well, the company may not perform nearly as well as the market adjusts its expectations for the future and assigns Tesla a much lower forward price-to-earnings (P/E) ratio.

My prediction

There are a lot of moving parts here, but my view is that, given the multiple setbacks Tesla has encountered in its attempts to scale its robotaxi business, the stiff competition from Waymo (and others), potential regulatory oversight, and the fact that many consumers are worried about whether self-driving vehicles are safe, Tesla won’t get close to a million robotaxis by 2031. The company’s core EV business should grow nicely, though.

And the EV leader should also see increased high-margin revenue from FSD subscriptions, which could help lift companywide margins. Assuming average annual earnings-per-share growth of 20% through the next five years, and if Tesla’s forward P/E drops to 100 from its current 154 by 2031, the company could have a market cap of about $2.3 trillion by then, which would grow at roughly 10.1% annualized over this period. These are pretty good returns.

But again, there is significant uncertainty, and Tesla’s returns might end up being much higher or much lower. Investors with an appetite for volatility should definitely consider the stock, given its huge upside potential. Just remember that the downside risk is massive, too.