Elon Musk is betting on Tesla's future as he unveils his robot taxi

In a sign of how big the scale was meant to be, he reportedly rented the entire Warner Bros. studio lot outside of Hollywood. The stakes couldn't be higher, with Wedbush Securities technology analyst Dan Ives calling the event a “pivot point for the Tesla story.”

While Musk significantly tempered expectations before the Optimus event, this time he is setting the bar high from the start. “This will go down in the history books,” he posted on Wednesday.

The Tesla CEO has reduced his investment case to a binary bet on whether his team can crack the code for unattended full self-driving (FSD) – a technology so complex that he has likened it to a small form of artificial general intelligence.

Anyone who doesn't believe should get out of the stock

Currently, its cars can already drive autonomously using a sophisticated onboard computer based on video data collected from Teslas already on the road. But in the worst case scenario, they may be doing the wrong thing and need constant supervision, like a teenager with a learner's permit. According to Musk, eliminating this risk would amount to Tesla's very own ChatGPT moment.

This breakthrough would result in what he calls the largest overnight surge in asset value ever in history, as millions of existing Teslas across the U.S. could be taught to drive unattended and independently at the push of a button. Once activated, they could net their owners $30,000 in robotaxi fares every year while they eat, sleep or work – and that's a figure Tesla cited in April 2019, so in today's dollars it's closer to $37,000 -dollars would be.

That's why Musk recently sent a message to any Tesla investors who are still skeptical about the company's autonomous driving ambitions: If this isn't the right stock for you, exit.

“Anyone who doesn’t believe that Tesla would solve vehicle autonomy (…) should sell their Tesla shares,” he told shareholders in July. “If you believe Tesla will solve autonomy, you should buy Tesla shares.”

Opportunity for a $5 trillion market cap

Musk estimates the technology is easily worth $5 trillion to investors, a sum that would make Tesla by far the most valuable company in the world.

Robotaxis would also begin to shift Tesla's profits and losses from reliance on selling cars to a more typical software business: licensing its FSD with high margins and predictable recurring revenue.

Will McDonough, chairman and CEO of asset manager Corestone Capital, argues that this kind of subscription-based revenue is exactly what institutional investors like him love.

“Selling a car is a single moment,” he says Assets. “That’s monthly revenue in perpetuity, and forward-looking cash flow is what Wall Street wants.”

Competition for Uber and Lyft

But Musk's ambitions go even further. What car would be better suited to carrying passengers than one built solely for that purpose? It wouldn't even need a steering wheel or pedals. He is expected to present such a visionary concept on October 10th.

Such a car could economically compete with an Uber without the hassle and expense of paying the driver. The mere mention of Musk's robotaxi ride-hailing plans in April caused the market leader's shares to plummet.

Brad Ferguson, president of Halter Ferguson Financial, says his firm's research has shown that the U.S. ride-sharing market is underserved, a gap that Tesla could fill if it can narrow the 10-year lead over its rivals. He hopes the unveiling of the robotaxis will raise awareness among customers and even companies interested in operating fleets of Tesla robotaxis.

“There is a significant market opportunity for a new entrant to offer rides at scale for $2 per mile or less,” he explains Assets. “People think of Uber and Lyft as tourists, but we found that the majority of riders are local—they use rideshare services to get to and from work.”

The mood rises

One of the reasons so much depends on the outcome of October 10th is that the optimism surrounding the Robotaxi event helped form a bottom for the stock and support a price that theoretically would have followed this year's earnings decline should.

Current estimates for next year's earnings only suggest a return to 2023 levels of around $3.12 per share, still well below the record $4.07 set in 2022. And yet the stock is roughly flat year to date and trading at more than 80 times next year's consensus earnings per share. Nicholas Colas, co-founder of market analytics firm DataTrek, called it a “faith-based stock.”

Luckily, the timing of the reveal is perfect.

Sentiment has improved since the Federal Reserve cut interest rates by half a percent and said there would be more to come. High borrowing costs limit consumers' ability to afford the high monthly car loan payments. Additionally, quarterly vehicle sales data next week is expected to show the first year-over-year increase since 2023.

Some notable Tesla bulls, such as Future Fund managing partner Gary Black, have warned that the event will likely be just another buy-rumors-sell-facts event when history is anything to go by. But Musk doesn't seem to think so.

Roadster reveal?

This could also be because the Tesla CEO has something else up his sleeve. Delaying the reveal by two months to make a major design change, he added that it would also give the team time to “show a few other things.”

This could include a second Tesla Roadster. Back in February, he promised to reveal it before the end of the year after carrying out a radical redesign of the 2017 concept car. One aspect that speaks for this is the fact that Tesla currently does not have a two-seater that it could exploit sales of. If the company revealed this, there would be little risk that customers would back out of buying an existing model and wait for the Roadster instead.

The invitation also says “We Robot.” That could suggest that Musk could also unveil the latest version of his Optimus prototype, which he believes will initially transform Tesla into an AI and robotics company.

Tesla did not immediately respond to a request for comment.

Corestone Capital's McDonough could even imagine more news similar to what investors expect at an Apple event, perhaps with ties to other parts of Musk's empire. The integration of its xAI chatbot Grok into Tesla vehicles is a widely speculated rumor. Given the breadth of Musk's businesses, there are so many possibilities.

“The ticker should be ELON, not TSLA,” McDonough says, “because people are trying to own Elon Inc.”

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