💡 Disclaimer: I own TSLA and this is not investment advice.
Most people, when thinking about Tesla, primarily consider its car models like the Model 3, Model S, and the recently launched Cybertruck.
Enthusiasts often discuss its role in promoting safe driving, the potential of its robotaxi fleet network, and the expected profits these innovations could generate over time.
For example, ARK Invest expects that 64% of Tesla’s Revenue is driven by Robotaxis:
However, these aren’t my primary reasons for investing in Tesla.
Recently, Tesla introduced a new demonstration of ‘Optimus,’ their humanoid robot:
This development, coupled with the increasing popularity and productivity boosts provided by large language models, is a significant factor in my investment rationale.
For instance, research companies like McKinsey report productivity increases of up to 50-80% due to these technologies.
🤖 The expectation is that we will eventually have billions of humanoid robots, outnumbering humans.
This is already evident in companies like Amazon, where robots outnumber human workers in fulfillment centers:
The economic value of humanoid robots is immense, especially in tasks like factory work or security, where they can operate 24/7 and perform tasks that are simple yet labor-intensive for humans.
Imagine the convenience of owning a robot capable of domestic chores, like folding clothes or walking the dog, or even performing more complex tasks like building houses or exploring other galaxies. The potential for these robots to transform industries and personal lives is vast, with applications ranging from robo-taxis to agricultural assistance.
In fact, let’s have a look at some examples that the new Tesla bot could already do today or will be able to do within the next 12 months or so (my predictions):
- Packing and Sorting in Warehouses
- Task: Moving, sorting, and packing items.
- Estimated Hourly Rate: $15 – $20
- Basic Cleaning and Maintenance
- Task: Sweeping floors, dusting, and simple cleaning tasks.
- Estimated Hourly Rate: $10 – $15
- Retail Assistance
- Task: Stocking shelves, organizing products, and providing basic customer directions.
- Estimated Hourly Rate: $12 – $18
- Elderly Assistance and Companionship
- Task: Providing company, reminding of medications, and assisting with mobility.
- Estimated Hourly Rate: $15 – $20
- Gardening and Yard Work
- Task: Lawn mowing, watering plants, and simple gardening tasks.
- Estimated Hourly Rate: $15 – $20
- Basic Security Monitoring
- Task: Patrolling premises, reporting unusual activities, and monitoring entrances.
- Estimated Hourly Rate: $10 – $15
- Pet Care
- Task: Feeding pets, walking dogs, and basic grooming.
- Estimated Hourly Rate: $10 – $15
- Delivery and Courier Services
- Task: Delivering packages, documents, and other items within a limited area.
- Estimated Hourly Rate: $10 – $20
- Basic Administrative Tasks
- Task: Filing documents, organizing office supplies, and simple data entry.
- Estimated Hourly Rate: $12 – $18
- Simple Construction and Assembly
- Task: Assisting in construction sites with material handling, basic assembly, and clean-up.
- Estimated Hourly Rate: $15 – $25
Considering Tesla is the leader of the fast-growth humanoid robotics industry, it’s reasonable to predict that, like Apple in the smartphone market, Tesla could capture a significant market share.
They are likely to keep their lead because of:
- Data: Tesla has already deployed the largest fleet of humanoid robots, and the number of bots grows exponentially.
- Talent: Tesla has 100 applicants for every position. They attract the best talent in the world.
- Timing: Tesla is the first company to scale up humanoid robot production.
- Knowhow: Tesla has already proven its manufacturing capabilities in the car business.
The financial implications would be enormous if Tesla were to sell hundreds of millions of units annually, even at a conservative estimate. This doesn’t even factor in potential revenue streams from subscriptions or additional services related to these robots.
My Napkin Valuation Tesla Bot
Let’s perform a simple valuation calculation of the Tesla bot’s impact on Tesla’s market capitalization and share price by ignoring all other business sectors:
Total Addressable Market (TAM): We estimate that humanoid bots’ TAM is around 1 billion units worldwide. This is a conservative figure, assuming one bot for every eight people. In fact, like in the Amazon case study, we’ll eventually see more bots than persons in 1-2 decades.
Annual Market Size: Given the estimated TAM and assuming an average bot lifespan of 3-5 years, with additional growth factored in, the total market size could reach approximately 300 million bots sold per year.
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Tesla’s Market Share: Considering Tesla’s leading position in the high-growth humanoid robot market, we project that they could capture about 33% of the market share. This estimation is slightly higher than Apple’s in the smartphone sector, owing to the increased complexity and specialization in the robot market.
Sales Volume for Tesla: With a 33% market share, Tesla would sell around 100 million bots annually.
Economic Value Per Bot: The price range for each bot is estimated between $10k and $100k per year.
For our calculations, we assume Tesla sells each bot for $30k, akin to a modestly priced car, and makes a profit for Tesla of $20k per unit, considering lower material costs and high profitability at scale production.
Annual Net Profit Calculation: With Tesla selling 100 million bots annually at a profit of $20k per bot, the net profit would be in the order of $2 trillion.
This is conservative when compared to many other numbers that Tesla experts find more convincing:
But let’s work with the $2T profit number for now.
Valuation Based on Profit Multiple: Applying a conservative profit multiple of 10x, Tesla’s valuation in the humanoid robot market could be around $20 trillion. This represents a potential increase of approximately 30x in Tesla’s stock price over the next decade.
The number of shares outstanding seems to stay below 4 billion in the decade ahead:
At an overly conservative 4 billion shares outstanding, the valuation per share would be
- $20 trillion market cap ($20,000,000,000,000), divided by
- 4 billion shares outstanding (4,000,000,000)
- $5,000 per share of TSLA
Wrapping Up
Given Tesla’s current position as an industry leader and innovator, the potential for growth is enormous.
Recently, I wrote about investing in Star Businesses, and Tesla Optimus checks all the boxes, i.e., a leader in a high-growth market:
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The company could expand far beyond its current valuation, making it, in my view, massively undervalued.
This assessment doesn’t even include Tesla’s existing automotive and AI businesses; it’s purely based on the potential of their humanoid robot venture.
Considering the likely expansion of this industry and Tesla’s leading role in it — in a way, they created the whole industry of massive production-scale humanoid robotics — I believe that Tesla is not just a car company, but the progenitor of what could be the most significant industry of the future and the company is highly undervalued.