You Won't Believe What Elon Musk Just Said About Tesla

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Among the "Magnificent Seven" stocks, Tesla (NASDAQ: TSLA) is the only one that has not posted a double-digit return so far in 2024. While there have been some notable rises in Tesla stock at different periods this year, shares are up just 4% as the end of October nears.

Despite these uninspiring gains, Tesla CEO Elon Musk is more bullish than ever. During the company's third-quarter earnings call, Musk told investors he thinks "Tesla will become the most valuable company in the world, and probably by a long shot."

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While I appreciate Musk's confidence, is such a remark reasonable? Well, it actually might be.

I'll detail what catalysts Tesla has and explain how these initiatives could bring significant upside to the company's valuation.

How can Tesla supercharge the business?

Tesla's main sources of growth right now come from its electric vehicles (EV), as well as its power storage business. Although Tesla is a leader in both these markets, automobiles and green energy infrastructure are not enough to propel Tesla to the world's most valuable business.

The main catalyst that can supercharge Tesla to the next level is artificial intelligence (AI). Right now, Tesla's two primary areas of AI investment are in autonomous driving technology and humanoid robotics.

Let's take a look at how self-driving cars and robotics can positively impact Tesla's valuation.

A person in a self-driving car.
Image source: Getty Images.

How will AI change Tesla's valuation?

Autonomous driving stands to be a game changer for Tesla. On the surface, the obvious tailwind from this technology is that it may inspire more people to purchase a Tesla over a vehicle made by another manufacturer. However, self-driving technology has the potential to be much more than a nice amenity.

Namely, Tesla is looking to build a fleet of Robotaxis. The long-term vision is that Tesla will have fleets of driverless cars on the road that can be used for a variety of applications besides everyday driving. For instance, Tesla could market its Robotaxis to delivery services, rental car businesses, or even ride-hailing platforms.

The real moneymaker here is not just from the accelerated sales that Tesla could witness should the Robotaxi initiative come to fruition. Rather, the company's autonomous driving software should carry a much higher profit margin profile compared to the stand-alone automobile business. Rising margins should flow directly to the bottom line, enhancing Tesla's net income and free cash flow.