Investor's Corner
Tesla will be most profitable player in EV space, VW second, says UBS
Tesla (NASDAQ: TSLA) and Volkswagen are forecasted to be the most profitable players in the electric vehicle space for the next few years, according to UBS analysts headed by skeptic Patrick Hummel. UBS released a note to investors on Wednesday that indicated American electric car company Tesla and German automaker Volkswagen are sitting in the best position moving forward, and it comes down to software.
Profitability seems to be where Tesla really separates itself from Volkswagen in terms of UBS projections, which see the two car manufacturers holding a substantial lead by 2025. Estimates show that Tesla will sell 2.3 million electric vehicles in 2025, with Volkswagen selling just 300,000 more at 2.6 million. However, Tesla’s operating profit will be nearly three times that of Volkswagen’s as UBS also forecasts $20 billion in annual profits for the California-based electric car company headed by Elon Musk. Volkswagen could make $7 billion that year.
With its plan to go fully electric by 2035, General Motors sits in third, with 800,000 EVs sold in 2025, giving the company a projected profit of $2 billion, UBS told investors, according to MarketWatch.
According to Hummel, of Tesla’s projected $20 billion profits in 2025, 45% will come from its in-house software alone. We estimate that $9 billion of the $20 billion OP is directly related to the monetization of Tesla’s software capabilities (mainly full self-driving),” the note to investors said. Tesla’s substantial lead in the sector doesn’t come down to production or range ratings. Its software, which is vastly more robust than any other car company in existence, is where Tesla sets itself apart from everyone else. Over the Air updates are one of the company’s most distinct advantages, allowing owners to upgrade their vehicles on what seems like a weekly basis, all through an internet connection. Additionally, it can expand performance ratings, range capabilities, and self-driving software, another sector where Tesla is currently dominating.
Volkswagen has plenty of potential as well, and its ID. series of vehicles could be the German company’s way into a highly competitive EV market. “VW should be well ahead of all other legacy OEMs, thanks to scale, but with a much smaller upside from software vs. Tesla.”
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What is perhaps Tesla’s biggest advantage, according to the UBS note, is its distinct focus on electric cars only. While OEMs like Volkswagen have continued to maintain that they are “all-in” on electrification, only Tesla remains in the shortlist of companies who are producing mass-market EVs without any time or money being funneled into combustion engine projects. Like Volvo and GM, many companies have lined up specific dates of when the final ICE vehicle will roll off of their production lines, but the longer they wait, the more of an advantage Tesla seems to gain.
“All large global OEMs including VW have accelerated software/digitization investments, but it remains to be seen if their strategies succeed. Tech companies and EV pure-plays are potentially in a better position to be the leading innovators,” the note said.
Time will only tell if the OEM’s strategy to not fully commit to EVs will pay off. Ultimately, Tesla sits in the proverbial driver’s seat until another car company can prove its worth in the sector, and it may not happen until a company fully commits to electrification.
Hummel raised his price target on Tesla stock from $325 to $730 while holding a Neutral rating.
Disclosure: Joey Klender is a TSLA Shareholder.
Elon Musk
Tesla locks in Elon Musk’s top problem solver as it enters its most ambitious era
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla has granted Senior Vice President of Automotive Tom Zhu more than 520,000 stock options, tying a significant portion of his compensation to the company’s long-term performance.
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla secures top talent
According to a Form 4 filing with the U.S. Securities and Exchange Commission, Tom Zhu received 520,021 stock options with an exercise price of $435.80 per share. Since the award will not fully vest until March 5, 2031, Zhu must remain at Tesla for more than five years to realize the award’s full benefit.
Considering that Tesla shares are currently trading at around the $445 to $450 per share level, Zhu will really only see gains in his equity award if Tesla’s stock price sees a notable rise over the years, as noted in a Sina Finance report.
Still, even at today’s prices, Zhu’s stock award is already worth over $230 million. If Tesla reaches the market cap targets set forth in Elon Musk’s 2025 CEO Performance Award, Zhu would become a billionaire from this equity award alone.
Tesla’s problem solver
Zhu joined Tesla in April 2014 and initially led the company’s Supercharger rollout in China. Later that year, he assumed the leadership of Tesla’s China business, where he played a central role in Tesla’s localization efforts, including expanding retail and service networks, and later, overseeing the development of Gigafactory Shanghai.
Zhu’s efforts helped transform China into one of Tesla’s most important markets and production hubs. In 2023, Tesla promoted Zhu to Senior Vice President of Automotive, placing him among the company’s core global executives and expanding his influence beyond China. He has since garnered a reputation as the company’s problem solver, being tapped by Elon Musk to help ramp Giga Texas’s vehicle production.
With this in mind, Tesla’s recent filing seems to suggest that the company is locking in its top talent as it enters its newest, most ambitious era to date. As could be seen in the targets of Elon Musk’s 2025 pay package, Tesla is now aiming to be the world’s largest company by market cap, and it is aiming to achieve production levels that are unheard of. Zhu’s talents would definitely be of use in this stage of the company’s growth.
Tesla analyst Andrew Percoco of Morgan Stanley teased the company’s dominance in its self-driving initiative, stating that its lead over competitors is “not even close.”
Percoco recently overtook coverage of Tesla stock from Adam Jonas, who had covered the company at Morgan Stanley for years. Percoco is handling Tesla now that Jonas is covering embodied AI stocks and no longer automotive.
His first move after grabbing coverage was to adjust the price target from $410 to $425, as well as the rating from ‘Overweight’ to ‘Equal Weight.’
Percoco’s new note regarding Tesla highlights the company’s extensive lead in self-driving and autonomy projects, something that it has plenty of competition in, but has established its prowess over the past few years.
He writes:
“It’s not even close. Tesla continues to lead in autonomous driving, even as Nvidia rolls out new technology aimed at helping other automakers build driverless systems.”
Percoco’s main point regarding Tesla’s advantage is the company’s ability to collect large amounts of training data through its massive fleet, as millions of cars are driving throughout the world and gathering millions of miles of vehicle behavior on the road.
This is the main point that Percoco makes regarding Tesla’s lead in the entire autonomy sector: data is King, and Tesla has the most of it.
One big story that has hit the news over the past week is that of NVIDIA and its own self-driving suite, called Alpamayo. NVIDIA launched this open-source AI program last week, but it differs from Tesla’s in a significant fashion, especially from a hardware perspective, as it plans to use a combination of LiDAR, Radar, and Vision (Cameras) to operate.
Percoco said that NVIDIA’s announcement does not impact Morgan Stanley’s long-term opinions on Tesla and its strength or prowess in self-driving.
NVIDIA CEO Jensen Huang commends Tesla’s Elon Musk for early belief
And, for what it’s worth, NVIDIA CEO Jensen Huang even said some remarkable things about Tesla following the launch of Alpamayo:
“I think the Tesla stack is the most advanced autonomous vehicle stack in the world. I’m fairly certain they were already using end-to-end AI. Whether their AI did reasoning or not is somewhat secondary to that first part.”
Percoco reiterated both the $425 price target and the ‘Equal Weight’ rating on Tesla shares.
Tesla stock (NASDAQ: TSLA) just got a price target boost from its biggest bear, Gordon Johnson of GLJ Research, who raised his expected trading level to one that is 95 percent lower than its current trading level.
Johnson pushed his Tesla price target from $19.05 to $25.28 on Wednesday, while maintaining the ‘Sell’ rating that has been present on the stock for a long time. GLJ has largely been recognized as the biggest skeptic of Elon Musk’s company, being particularly critical of the automotive side of things.
Tesla has routinely been called out by Johnson for negative delivery growth, what he calls “weakening demand,” and price cuts that have occurred in past years, all pointing to them as desperate measures to sell its cars.
Johnson has also said that Tesla is extremely overvalued and is too reliant on regulatory credits for profitability. Other analysts on the bullish side recognize Tesla as a company that is bigger than just its automotive side.
Many believe it is a leader in autonomous driving, like Dan Ives of Wedbush, who believes Tesla will have a widely successful 2026, especially if it can come through on its targets and schedules for Robotaxi and Cybercab.
Justifying the price target this week, Johnson said that the revised valuation is based on “reality rather than narrative.” Tesla has been noted by other analysts and financial experts as a stock that trades on narrative, something Johnson obviously disagrees with.
Dan Nathan, a notorious skeptic of the stock, turned bullish late last year, recognizing the company’s shares trade on “technicals and sentiment.” He said, “From a trading perspective, it looks very interesting.”
Tesla bear turns bullish for two reasons as stock continues boost
Johnson has remained very consistent with this sentiment regarding Tesla and his beliefs regarding its true valuation, and has never shied away from putting his true thoughts out there.
Tesla shares closed at $431.40 today, about 95 percent above where Johnson’s new price target lies.
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