Many bears view Tesla as no more than an overvalued auto manufacturer, but the company is making notable strides across green energy and artificial intelligence (AI).
One of the biggest knocks against electric vehicle (EV) maker Tesla (TSLA 0.66%) is the idea it’s just a car company, not a tech giant that deserves a place among the Magnificent Seven.
Indeed, EV sales account for the large majority of Tesla’s revenue. However, besides the massive potential behind opportunities like artificial intelligence (AI) that bullish investors may point to, the company has an existing energy storage business too.
Let’s explore some of Tesla’s capabilities outside of manufacturing EVs and assess what the company could look like in the long run.
The energy storage business is building momentum
Tesla’s energy storage business revolves around the company’s Megapack battery. The table below illustrates how this segment has been trending over the last several quarters:
| Category | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 | Q1 2023 |
|---|---|---|---|---|---|
| Energy generation and storage revenue | $1.64 billion | $1.44 billion |
$1.56 |
$1.51 billion | $1.53 billion |
Data source: Tesla Investor Relations.
During the first quarter of 2024, this segment generated both record revenue and gross profit.
These details around Tesla’s other operating segments often go overlooked as investors and Wall Street analysts focus on the company’s vehicle production and delivery figures.
However, the relatively high margins of the energy storage business could unlock some lucrative growth for Tesla as the company combats a particularly challenging EV market right now.
During the most recent earnings call, Tesla CEO Elon Musk hinted at even further penetration of the Megapack, stating that energy storage will grow “significantly faster than the car business as we expected.”
Self-driving technology will be lucrative
Perhaps the biggest effort underway at Tesla is autonomous driving. Big tech stalwart Alphabet and legacy automaker General Motors are both investing heavily in self-driving technology as well. However, Tesla is also a leader in the space.
Tesla’s autonomous driving software, full self driving (FSD), has collected over 1.3 billion miles of driver data — more than any other competing platform.
There are two opportunities behind FSD that investors should understand. First, if Tesla is the first mainstream vehicle manufacturer to include a 100% self-driving capability in its vehicles, this could provide the company with a massive edge when it comes to overall demand. In theory, such technology should eventually lead to an influx of new Tesla owners.
The other reason FSD has so much potential is Tesla’s ability to license its tech to other car companies. For automakers that do not want to invest in developing their own autonomous driving platform, they could pay Tesla a fee to integrate its technology into their cars.
This would be a recurring source of revenue with high margins — an enormous opportunity for Tesla in the long run.
Moreover, while large scale commercialization of self-driving cars is likely still years away, Musk has teased that investors are in store for a big surprise later this year as it relates to the company’s autonomous driving ambitions.
Advanced robotics could be here soon
Another AI-related opportunity lies in robotics, and Tesla is just one of many companies aggressively seeking out areas this technology can enhance its business.
Namely, the most exciting application is humanoid robots, trained through generative AI, to perform basic tasks currently done by humans.
At scale, integrating humanoid robots into settings such as manufacturing, warehousing, and logistics could lead to widespread efficiencies across the labor market. For Tesla, the company believes its Optimus bot could be “in limited production in the natural factory itself, doing useful tasks before the end of this year.” Moreover, Musk believes “we may be able to sell it externally by the end of next year.”
While this is exciting, it’s important to note there is no guarantee Optimus will be up and running this year. Musk has a well-known history of announcing overzealous deadlines and missing them.
The bottom line
At the end of the day, EVs may be Tesla’s current bread and butter. But there’s no denying the nascent parts of this company are key to its growth story, and its most lucrative long-term prospects all revolve around AI. Investors have good reasons to remain bullish that Tesla can expand far beyond the core EV business.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet and Tesla. The Motley Fool has positions in and recommends Alphabet and Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.