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Tesla will be most profitable player in EV space, VW second, says UBS

(Credit: Tesla)

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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.

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Hummel raised his price target on Tesla stock from $325 to $730 while holding a Neutral rating.

Disclosure: Joey Klender is a TSLA Shareholder.

Joey has been a journalist covering electric mobility at TESLARATI since August 2019. In his spare time, Joey is playing golf, watching MMA, or cheering on any of his favorite sports teams, including the Baltimore Ravens and Orioles, Miami Heat, Washington Capitals, and Penn State Nittany Lions. You can get in touch with joey at joey@teslarati.com. He is also on X @KlenderJoey. If you're looking for great Tesla accessories, check out shop.teslarati.com

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Elon Musk

Tesla blacklisted by Swedish pension fund AP7 as it sells entire stake

A Swedish pension fund is offloading its Tesla holdings for good.

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(Credit: Tesla)

Tesla shares have been blacklisted by the Swedish pension fund AP7, who said earlier today that it has “verified violations of labor rights in the United States” by the automaker.

The fund ended up selling its entire stake, which was worth around $1.36 billion when it liquidated its holdings in late May. Reuters first reported on AP7’s move.

Other pension and retirement funds have relinquished some of their Tesla holdings due to CEO Elon Musk’s involvement in politics, among other reasons, and although the company’s stock has been a great contributor to growth for many funds over the past decade, these managers are not willing to see past the CEO’s right to free speech.

However, AP7 says the move is related not to Musk’s involvement in government nor his political stances. Instead, the fund said it verified several labor rights violations in the U.S.:

“AP7 has decided to blacklist Tesla due to verified violations of labor rights in the United States. Despite several years of dialogue with Tesla, including shareholder proposals in collaboration with other investors, the company has not taken sufficient measures to address the issues.”

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Tesla made up about 1 percent of the AP7 Equity Fund, according to a spokesperson. This equated to roughly 13 billion crowns, but the fund’s total assets were about 1,181 billion crowns at the end of May when the Tesla stake was sold off.

Tesla has had its share of labor lawsuits over the past few years, just as any large company deals with at some point or another. There have been claims of restrictions against labor union supporters, including one that Tesla was favored by judges, as they did not want pro-union clothing in the factory. Tesla argued that loose-fitting clothing presented a safety hazard, and the courts agreed.

tesla employee

(Photo: Tesla)

There have also been claims of racism at the Fremont Factory by a former elevator contractor named Owen Diaz. He was awarded a substantial sum of $137m. However, U.S. District Judge William Orrick ruled the $137 million award was excessive, reducing it to $15 million. Diaz rejected this sum.

Another jury awarded Diaz $3.2 million. Diaz’s legal team said this payout was inadequate. He and Tesla ultimately settled for an undisclosed amount.

AP7 did not list any of the current labor violations that it cited as its reason for

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Investor's Corner

xAI targets $5 billion debt offering to fuel company goals

Elon Musk’s xAI is targeting a $5B debt raise, led by Morgan Stanley, to scale its artificial intelligence efforts.

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(Credit: xAI)

xAI’s $5 billion debt offering, marketed by Morgan Stanley, underscores Elon Musk’s ambitious plans to expand the artificial intelligence venture. The xAI package comprises bonds and two loans, highlighting the company’s strategic push to fuel its artificial intelligence development.

Last week, Morgan Stanley began pitching a floating-rate term loan B at 97 cents on the dollar with a variable interest rate of 700 basis points over the SOFR benchmark, one source said. A second option offers a fixed-rate loan and bonds at 12%, with terms contingent on investor appetite. This “best efforts” transaction, where the debt size hinges on demand, reflects cautious lending in an uncertain economic climate.

According to Reuters sources, Morgan Stanley will not guarantee the issue volume or commit its own capital in the xAI deal, marking a shift from past commitments. The change in approach stems from lessons learned during Musk’s 2022 X acquisition when Morgan Stanley and six other banks held $13 billion in debt for over two years.

Morgan Stanley and the six other banks backing Musk’s X acquisition could only dispose of that debt earlier this year. They capitalized on X’s improved operating performance over the previous two quarters as traffic on the platform increased engagement around the U.S. presidential elections. This time, Morgan Stanley’s prudent strategy mitigates similar risks.

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Beyond debt, xAI is in talks to raise $20 billion in equity, potentially valuing the company between $120 billion and $200 billion, sources said. In April, Musk hinted at a significant valuation adjustment for xAI, stating he was looking to put a “proper value” on xAI during an investor call.

As xAI pursues this $5 billion debt offering, its financial strategy positions it to lead the AI revolution, blending innovation with market opportunity.

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Tesla tops Cathie Wood’s stock picks, predicts $2,600 surge

Tesla’s future lies beyond cars—with robotaxis, humanoid bots & AI-driven factories. Cathie Wood predicts a 9x surge in 5 years.

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Cathie Wood shared that Tesla is her top stock pick. During Steven Bartlett’s podcast “The Diary Of A CEO,” the Ark Invest founder highlighted Tesla’s innovative edge, citing its convergence of robotics, energy storage, and AI.

“Because think about it. It is a convergence among three of our major platforms. So, robots, energy storage, AI,” Wood said of Tesla. She emphasized the company’s potential beyond its current offerings, particularly with its Optimus robots.

“And it’s not stopping with robotaxis; there’s a story beyond that with humanoid robots, and our $2,600 number has nothing for humanoid robots. We just thought it’d be an investment, period,” she added.

In June 2024, Ark Invest issued a $2,600 price target for Tesla, which Wood reaffirmed in a March Bloomberg interview, projecting the stock to reach this level within five years. She told Bartlett that Tesla’s Optimus robots would drive productivity gains and create new revenue streams.

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Elon Musk echoed Wood’s optimism in a CNBC interview last month.

“We expect to have thousands of Optimus robots working in Tesla factories by the end of this year, beginning this fall. And we expect to scale Optimus up faster than any product, I think, in history to get to millions of units per year as soon as possible,” Musk said.

Tesla’s stock has faced volatility lately, hitting a peak closing price of $479 in December after President Donald Trump’s election win. However, Musk’s involvement with the White House DOGE office triggered protests and boycotts, contributing to a stock decline of over 40% from mid-December highs by March.

The volatility in Tesla stock alarmed investors, who urged Musk to refocus on the company. In a May earnings call, Musk responded, stating he would be “scaling down his involvement with DOGE to focus on Tesla.” Through it all, Cathie Wood and Ark Invest maintained their faith in Tesla. Wood, in particular, predicted that the “brand damage” Tesla experienced earlier this year would not be long term.

Despite recent fluctuations, Wood’s confidence in Tesla underscores its potential to redefine industries through AI and robotics. As Musk shifts his focus back to Tesla, the company’s advancements in Optimus and other innovations could drive it toward Wood’s ambitious $2,600 target, positioning Tesla as a leader in the evolving tech landscape.

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