Investor's Corner
Tesla’s word of mouth strategy in focus: Why Elon Musk’s owner-based initiative works
Tesla’s (NASDAQ:TSLA) avoidance of traditional advertising initiatives is one of the most recognizable things about the company, yet it is one that has been questioned several times over the years by Wall Street analysts, investors and even avid fans. Yet, despite these questions, CEO Elon Musk’s answer has always been the same: Tesla does not do traditional advertising. Musk emphasized this point during the last earnings call too, stating that if Tesla would do some form of marketing, it would be strictly informational in nature.
“What we’re seeing is that word of mouth is more than enough to drive our demand in excess of production. We have no plans to advertise at this time. At some point in the future, we may do advertising not in the traditional sense but more to just inform people and make sure they are aware of the product, but not engage in the typical trickery that is commonplace in advertising,” Musk said.
In a conversation with Teslarati, investor and economist @Incentives101 explained that if one looks at Tesla’s word-of-mouth strategy from a mathematical perspective, it would seem that Elon Musk’s stern stance against traditional advertising may actually be well justified. Considering the manner that Tesla has been growing so far, the economist noted that “Elon is probably right. They don’t need advertisement and probably will never need it.” The following sections explains this point.
How Customers Learn About Tesla
There are generally three ways a new customer could learn about Tesla and its products: 1)Elon’s/Tesla goodwill, 2) customers’ own research, or 3) through an existing Tesla owner. Tesla relies heavily on current owners spreading the word and converting people they know into new electric car owners. Most people call this strategy the “Network Effect,” but the economist states that this is a misinterpretation.
“The Network Effect is technically applied to how a product increases its value from a network. The telephone is the most obvious example. One or two telephones in the world are useless, but the more there, are the more useful they become. In a way, you have to treat this like a disease. If you analyze (Tesla’s) strategy, you not only need information to flow. You need the information that changed hands to have an effect. In this case, the purchase of another Tesla. The most similar models to this strategy out there are how diseases spread,” the investor said.
These mathematical models try to predict how a disease will be spread considering different assumptions and variables. Among those variables are the number of susceptible individuals, of infected people and of recovered people, as well as the rate of contagion. For purposes of this illustration, information is equal to a virus and the main variables are the number of people that want to buy a car in that period of time within a target price range or TCO (susceptible individuals), the number of owners at the time (infected people), and the average number of people that an owner would convert in that period of time (contagion). This will be referred to in this article as the ‘T’ variable.
How Tesla spreads
The investor explains this further in the following statement. “The easiest way to understand this is the following. Imagine you’re looking at a decision tree. Each node is a new person with a Tesla in a period of time and how many nodes come out of that person is our ‘T.’ In each period of time that you’d want to measure, there are more assumptions that would need to be made. For example, an owner never ‘recovers’ so not only they ‘infect’ people but they will be contagious in perpetuity.
“Let’s analyze the spectrum of possible solutions. If T>=1, it would mean that information is flowing very efficiently and it will behave exponentially even if the time it takes for an owner to spread enough information to convert someone is relatively high. You need to consider that today, there are more than half a million owners. The faster the person transmits the ‘virus,’ the better,” he said.
There is no way to approximate these variables with the information available to us today. But recently, Tom Randall from Bloomberg released the findings of a study involving 5,000 Model 3 owners. According to the study’s results, 99% of Model 3 owners are pretty much satisfied with the vehicle, and they are willing to recommend the electric car to friends and family. A number of assumptions could be drawn from these results, as per the investor.
“If you consider what would be the worst scenario for Tesla, it would mean a very long time for contagion to spread, with the ‘T’ variable being very close to zero. But with the information provided in the Bloomberg report, there is a very high probability that ‘T’ is not close to zero at all. Instead, there’s a good chance that ‘T’ is probably very close to 1,” the economist said.
Growing Without Traditional Advertising
These assumptions would mean that Tesla can continue to grow without engaging in traditional advertising. Looking at Tesla’s history, we can see that this strategy or combination of strategies have worked. But is there an optimal time to have an information campaign? “It seems that the sooner, the better” the investor explained. “If you look at how this strategy functions, theoretically, the best time to have an information campaign is when they’ll have the least amount of owners and when they’ll increase production dramatically. So in theory this means in the next few months as Tesla continues to hit its stride with Model 3 and begin producing the Model Y, high volume vehicle that Elon Musk expects will outsell the Model S, X, and Model 3 combined. This doesn’t mean they need one, it just means it could be the best time,” he added.
It wouldn’t be accurate to assume that this strategy or combination of strategies is what creates demand. Any company could choose to have either this strategy or spend millions of dollars in advertising and demand wouldn’t necessarily go up or down. “Consumers need information to make decisions — it’s a very important factor — but demand is a function of several factors, particularly consumer preferences. Under perfect information, there is zero doubt demand for Tesla’s will rise as we explained in this note,” the investor noted.
“Tesla’s word-of-mouth strategy helps spread information, but if this product didn’t have a fundamental effect in consumers, it wouldn’t really matter. I’m confident that if banks or media had someone looking at this problem from the consumer side, we would never see a note about alleged ‘demand problems’ again. Tesla has never had a demand problem and data shows that they won’t face one. But they might face an information gap, particularly with how media misinforms consumers,” the economist said.
Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.
Investor's Corner
Tesla tailwinds could drive momentum-filled finish to 2025: analyst
Tesla is heading toward some momentum to finish out the year, one Wall Street firm believes.
Tesla has some tailwinds that could drive it toward a momentum-filled finish to the year, one Wall Street analyst is predicting.
The tailwinds are joined by some minor risks that have impacted the broader electric vehicle market, but overall, this firm believes Tesla has many catalysts moving forward.
Emmanuel Rosner of Wolfe Research believes that Tesla has plenty of things that could drive the stock upward as we approach the end of the year. With Q3 well underway, Tesla has about five months of catalysts to rely on to erase the roughly 18 percent drop in stock price it has so far this year.
At first glance, it is easy to see the things that would have investors bullish on Tesla for the rest of 2025 and even beyond. Initially, the Robotaxi launch and expansion, which spread to Northern California last night, provide potentially huge tailwinds for the company moving forward.
Along with that, and slightly related, are the advancements in Full Self-Driving that the company has made over the past few months.
This includes the potential launch of the FSD suite in regions like Europe and Australia, where the company believes it will make some progress on regulatory approval in the coming months.
Finally, Wolfe says the company’s Optimus project, which is expected to enter scale production sometime next year, is the third catalyst for Tesla moving forward.
With these three projects in motion, Tesla truly can begin to work on rebounding from a rough 2025 on the market.
Rosner writes:
“This name trades more around the narrative than the numbers. And net-net, we tactically see an improving narrative from here. Tesla has several catalysts coming up w/r/t FSD and Robotaxi, including an expansion of their AV service into several new U.S. markets (San Francisco, Nevada, Arizona, Florida, etc.). The company plans to unlock hands-free/eyes-off autonomy for FSD owners in select U.S. locations by YE25. Supervised FSD in China and Europe is expected to launch over the next ~12 months. And, Optimus is expected to enter scale production in 2026.”
Tesla is currently trading around $310 at around 3:20 p.m. on the East Coast.
Investor's Corner
Tesla Robotaxi execution should lead to valuation ‘far exceeding current levels’: analyst
RBC Capital bumped its price target on Tesla stock slightly from $319 to $325.
Tesla’s Robotaxi platform is the primary focus for the automaker currently, and based on what has been outlined by the company as goals for the project, one firm is saying that the company’s valuation should “far exceed even current levels.”
The Robotaxi is a self-driving ride-hailing service that Tesla plans to implement in current and future vehicle builds. CEO Elon Musk and other executives have said that “the vast majority of the Tesla fleet that we’ve made is capable of being a Robotaxi,” thanks to its development of Over-the-Air software updates that increase the capability of the vehicle with a simple download.
Currently, the Robotaxi platform is only active in a portion of Austin, Texas, but Tesla is expanding to other markets, including California, Nevada, Arizona, and Florida. California will be the next market to open its doors to the Tesla Robotaxi platform.
🚨 Tesla Robotaxi is close to offering rides in California based on this new message we got in our app.
There is no geofence currently set up in the Bay Area, but we’ll monitor it moving forward. pic.twitter.com/ZrKAqDqQs9
— TESLARATI (@Teslarati) July 26, 2025
But the name of the game is execution, and that’s what Tesla is aiming for in a timely fashion. If it can come through on all of its current goals, its valuation could explode, and one firm is holding steady on that narrative as Tesla continues to work toward expanding Robotaxi.
On Tuesday, RBC Capital analysts bumped their price target on Tesla shares (NASDAQ: TSLA) to $325 from $319, primarily due to the Robotaxi expansion and its success:
“Should Tesla be successful on all of its goals, its valuation could far exceed even current levels. The Austin Robotaxi launch has been better than many feared, and the company is looking to expand in more cities.”
There are some risks to Tesla’s narrative, but they fall outside the scope of what the company can control. In relation to Robotaxi, regulatory hurdles remain. Some regions may be slower than others to give Tesla the proper licensing to operate in their jurisdiction. This could slow the pace of Robotaxi expansion, bringing some overhang to the story.
Additionally, Tesla is fending off narratives of slowing demand, and the White House’s decision to revoke the $7,500 EV tax credit from consumers could temper sales past Q3.
Nevertheless, Robotaxi is where Tesla’s true value seems to be focused. Successfully launching a driverless ride-sharing platform is where the company is putting all of its eggs, and revolutionizing passenger travel is where the focus lies.
RBC Capital’s note continued:
“Regulatory hurdles remain, however. Further, we expect the end of IRA credits and high levels of used EV inventory to pressure the auto business for the next several quarters.”
The slight price target bump puts RBC Capital’s expectations near where the stock is trading, as it is currently priced at around $320 at 9:54 a.m. on the East Coast.
Investor's Corner
Elon Musk shares details on Tesla AI6 production deal with Samsung
Tesla is already laying the groundwork for the ramp of its next-generation products.
Elon Musk has provided some details about Tesla’s AI6 production deal with South Korean tech giant Samsung. As per Musk, Samsung’s upcoming Texas fabrication facility will be dedicated to the production of Tesla’s AI6 chip.
Musk’s update suggests that Tesla is already laying the groundwork for the ramp of its next-generation products like the Cybercab and Optimus.
Samsung AI6 production reports
On Sunday, Bloomberg News claimed that Samsung will be producing semiconductors for Tesla in a $16.5 billion deal. As per the report, Samsung is currently producing Tesla’s AI4 chip, and the deal will help the South Korean tech giant gain some ground back from competitors in the semiconductor market.
Elon Musk confirmed the news on X, stating that the $16.5 billion is actually just the bare minimum. As per Musk, the deal with Samsung will likely be “much more than that.” And in a later comment, Musk clarified that the actual output of Samsung’s Tesla AI6 plant will “likely be several times higher” than what has been reported.
Musk shared a critical detail that would likely allow Samsung to maximize its AI6 output. “Samsung agreed to allow Tesla to assist in maximizing manufacturing efficiency. This is a critical point, as I will walk the line personally to accelerate the pace of progress. And the fab is conveniently located not far from my house,” Musk wrote in his post.
Elon Musk on AI5 and AI6
Tesla currently produces vehicles with its AI4 chip, which is produced by Samsung. As per the CEO, Tesla’s AI5 chip, which just finished its design, will be produced by TSMC. The AI5 chip will be produced initially in Taiwan, and then in Arizona, the CEO noted.
Elon Musk’s comments about AI6 and Samsung’s output suggest that Tesla is really preparing to enter a stage in its growth that involves production at a scale that’s never been seen before. Tesla’s speed is quite notable, though it seems safe to assume that the actual rollout of AI6 will still be a few years away.
In a few years, Tesla will probably be mass producing the Cybercab and Optimus, as well as more affordable vehicles that will likely see more adoption from mainstream customers. This means that Samsung’s AI6 ramp will likely be just in time to support Tesla’s outputs for its Optimus bots, its Cybercabs, and its mass market affordable cars.
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