The Tesla Paradox: A $10 Trillion Robot, a Shrinking Auto Business, and the Power of Hype
A tale of two automakers
One generates nearly $200 billion in revenue, sells over six million vehicles, and pulls in $14 billion in free cash flow. It has decades of experience, profitable gasoline and EV businesses, and some of the most recognized brands in the world.
The other is a company whose revenue is half that, profit margins are shrinking, and its CEO has spent years promising that its cars will soon drive themselves, just not quite yet.
Yet, the second company is worth 20 times more than the first.
The Tesla Effect
Tesla’s $1.2 trillion valuation continues to defy gravity. Meanwhile, General Motors , despite being stronger on multiple financial metrics, is worth just $60 billion.
Why? Because Elon Musk isn’t just selling cars. He’s selling the future to investors.
During Tesla’s most recent earnings call, Musk made yet another staggering claim: Tesla’s Optimus humanoid robot could be a $10 trillion business, bigger than the entire U.S. GDP.
He also doubled down on Full Self-Driving (FSD), suggesting that Tesla will be rolling out a fully autonomous ride-hailing service by mid-2025. Never mind that he’s been making similar promises for years.
These narratives (AI, robotics, and autonomy) are what keep Tesla’s valuation in the stratosphere. Investors continue to believe Tesla isn’t just a car company. Although many assumed not that long ago that it would be the car company that would eventually dominate all car companies. Today’s Tesla investor believes the automaker is a technology company poised to dominate trillion-dollar industries that don’t yet exist.
The Numbers Tell a Different Story
Tesla’s stock trades at an absurd 115 times forward earnings. By comparison, GM trades at just 4.6 its forward earnings.
And when you break down the actual business fundamentals, the Tesla premium makes even less sense.
GM’s 2024 revenue of $187 billion grew by 9%; Tesla’s revenue of $97.7 billion only increased 1%.
GM’s operating income for the year was $14.9 billion, a 21% increase; Tesla’s operating income fell to $7.56 billion from $8.89 billion a year ago.
Free Cash Flow for GM was $14B in 2024. For Tesla, free cash flow was only $3.6 billion, which was an 18% decline from 2023.
By nearly every traditional measure, GM is the better-performing company. Yet, investors remains fixated on Tesla’s long-term vision, even though other companies are already executing on the very things Tesla is promising.
At some point, Tesla has to deliver on its trillion-dollar promises. Optimus can’t just be a cool prototype. FSD can’t always be “coming soon.”
If Tesla Is an AI Company, What About Alphabet Inc.’s Waymo?
For years, Musk has told investors that Tesla is not just an automaker, suggesting that his company is an AI powerhouse, that will dominate robotaxis and autonomous mobility.
But if Tesla is really the company that will lead the robotaxi revolution, here’s a question that investors should ask:
Why aren’t the private investors in Alphabet’s Waymo valuing that business the same way?
Waymo is already operating fully autonomous robotaxi services in San Francisco, Los Angeles, and Phoenix, something Tesla has yet to achieve.
And yet, Waymo’s estimated valuation within Alphabet is around $45 billion. That’s barely 3.5% of Tesla’s market cap, despite Waymo arguably being further along in autonomy.
If robotaxis are truly a multi-trillion-dollar opportunity, wouldn’t private investors, who generally have deep insight into the technology, value Waymo much higher than it’s current valuation?
The fact that they aren’t raises an uncomfortable reality. Either Waymo investors are severely undervaluing its potential. Or Tesla investors are dramatically overestimating what Tesla’s autonomy business will be worth.
Right now, Tesla is getting credit for an AI-driven future that no other company in the space is commanding. And that should make investors pause.
The Energy Business Illusion
Tesla fans often point to Tesla’s energy division as another pillar of the company’s future. In fact, the business is growing fast, up 67% year-over-year.
But here’s the problem. Even after that massive growth, energy still only accounts for 10% of Tesla’s total revenue. And its impact on Tesla’s overall profit is minimal.
Tesla’s energy business, while promising, isn’t anywhere close to being a primary driver of the company’s valuation. It’s a rounding error compared to the grand visions Musk sells to investors.
The Power of Perception
Tesla is not being valued as an automaker. If it were, its P/E ratio would be closer to GM’s single digits, not the triple digit valuation it commands today.
Instead, Tesla is being valued like a high-growth tech company - an AI leader, a robotics pioneer, and the future of self-driving transportation king.
But how long can the story hold up?
At some point, Tesla has to deliver on these trillion-dollar promises. Optimus can’t just be a cool prototype. FSD can’t just be “coming soon.”
Because if reality doesn’t match the hype, Tesla’s valuation, no matter how much investors want to believe, will eventually have to come back to Earth.
Disclosure: I do not own any Tesla, GM or Alphabet shares. I do not have any short positions in Tesla.
Disclaimer:
TaaSMaster, LLC is not a registered investment advisor or broker/dealer. All investment opinions expressed by TaaSMaster, LLC are from personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur.