Tesla (TSLA) investors are once again caught between short-term realities and Elon Musk’s long-range vision for the future. The company’s third-quarter earnings report painted a mixed picture: record vehicle sales but markedly weaker profitability. Still, even as uncertainty grows around Tesla’s core electric vehicle business, Musk continues to look to the future. His message to investors was clear: Tesla’s future is not just about electric vehicles (EVs), but about robots.
During the company’s recent earnings call, Musk described the humanoid robot Optimus as an “infinite money failure” that was once produced at scale and even went so far as to say it could become “the biggest product of all time.” It’s not the first time Musk has portrayed Tesla as an artificial intelligence and robotics company rather than a traditional automaker, but this time the conviction seemed stronger than ever. Optimus was mentioned 36 times during the call, making him a major topic.
With Musk doubling down on his robotics vision while Tesla faces near-term headwinds (falling profits, intensifying EV competition and his own attention spread across multiple companies), investors face a tough question: Does Optimus’ long-term promise make TSLA stock worth buying right now? Let’s look at what’s driving both the hype and the hesitancy.
With a market capitalization of $1.44 trillion, Tesla is a leading innovator dedicated to accelerating the global transition to sustainable energy. The Elon Musk-led powerhouse designs, develops, manufactures, leases and sells high-performance all-electric vehicles, solar power generation systems and energy storage products. It also offers maintenance, installation, operation, loading, insurance, financial and various other services related to its products. Additionally, the company is increasingly focusing on products and services focused on artificial intelligence, robotics and automation.
Shares of the electric vehicle maker have gained 9.7%.so far this year (YTD). TSLA stock initially fell last Thursday after missing earnings, but ultimately closed higher, supported by the strength of the broader market. Still, shares fell 3.4% on Friday as investors continued to digest the company’s weak results.
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Elon Musk often emphasizes that Tesla is more of an artificial intelligence and robotics company than a traditional automaker. And the latest earnings call further underscored that point. Musk reiterated his belief that Optimus, the AI-trained humanoid robot in development, could become the biggest product of all time. He referred to Optimus as an “infinite money failure” once produced at scale and previously claimed sales could account for 80% of Tesla’s value. Notably, Optimus was mentioned 36 times on the call, making him a major topic.
Musk’s speech about Tesla’s robotics vision represents a much-needed new direction for the company. Tesla’s profits declined in the third quarter despite record vehicle sales, which were boosted by a surge in purchases ahead of the expiration of a federal tax credit (we’ll delve into its third-quarter results a little later). And a highly competitive electric vehicle market is raising the stakes for Tesla’s success in its robotaxi and artificial intelligence initiatives. “We’re at a critical inflection point for Tesla. Honestly, it’s going to be like a shock wave,” Musk said on the earnings conference call.
The most interesting thing is that more and more top-level analysts and executives are starting to talk seriously about robotics. Nvidia CEO Jensen Huang is eager to leverage his success in AI chips to expand into robotics. In early June, TSMC (TSM) President CC Wei noted that demand for chips that power humanoid robots is increasing rapidly. TSMC predicts that by 2030, around 1.3 billion AI-powered robots will be deployed, creating a market valued at $35 billion. And humanoid robotics is expected to become a key growth driver for TSMC between 2030 and 2040.
Meanwhile, Morgan Stanley Research estimates that the humanoid robotics market could reach $5 trillion by 2050. “Adoption should be relatively slow until the mid-2030s, accelerating in the late 2030s and 2040s,” according to Adam Jonas, head of Global Automotive and Shared Mobility Research at Morgan Stanley.
Now, let’s get back to some of the additional insights Musk shared about Optimus. He said a prototype designed for series production is expected to be ready for demonstration in March. Analysts are eager to take a closer look at Optimus, although it is not expected to generate revenue in the near future. The CEO also noted that “first-generation production lines for Optimus are being installed in anticipation of volume production.” However, Musk did not specify when production could begin.
Meanwhile, during the earnings call, Musk also stated that with Optimus and self-driving technology, Tesla could help create a world without poverty, where everyone has access to high-quality healthcare. He suggested that Optimus could, for example, become an exceptionally skilled surgeon. Musk has claimed that Tesla could produce up to 1 million robots a year by the end of the decade.
But back to reality: there are numerous challenges to overcome before Optimus can reach mass production. The company has been working on design challenges involving robot hands and forearms. Musk said Optimus’s hand and forearm are an extremely complex engineering challenge. He emphasized that creating a highly capable hand is essential to developing a truly useful general-purpose robot. Another challenge lies in the lack of an existing supply chain for humanoid robots, forcing Tesla to be highly vertically integrated and handle much of the manufacturing in-house. You can also check out my previous article on TSLA to read what skeptics have said about Optimus.
Tesla released its third-quarter results last week, becoming the first of the Magnificent Seven companies to do so. Let’s take a quick look at the positive aspects of the report. First, total revenue rose 11.6% year-over-year (YoY) to $28.09 billion, beating Wall Street estimates by $1.39 billion. The revenue increase came after two consecutive quarters of declines, driven by a surge in demand ahead of the expiration of electric vehicle tax credits. As a result, Tesla’s total automotive revenue grew 6% year-on-year to $21.2 billion. While this was positive, it was not a huge surprise to investors, as the record delivery numbers released in early October had already indicated. Another reason investors didn’t cheer the strong rally is that U.S. electric vehicle sales are expected to fall in the current quarter as many buyers who would have bought later in the year rushed to take advantage of the expiring tax credit. Notably, almost half of Tesla’s revenue comes from American customers.
But let’s get back to the positive. Another strong point in the report was Tesla’s energy business, which reached record levels of storage deployment. This resulted in segment revenue of $3.4 billion, a 44% year-over-year increase. During the quarter, Tesla introduced its “Megablock” energy storage product, a pre-engineered medium-voltage battery that combines four MegaPack 3s. Musk also mentioned that Tesla has ambitious plans for MegaPack 4, which will be capable of delivering approximately 35 kilovolts directly, eliminating the need for a 35 kV substation. Baird analysts noted that Tesla’s new energy products are a big deal, with the potential to expand the company’s margins and overall addressable market. The services and other segment also performed well, with revenue increasing 25% year-on-year to $3.5 billion.
As far as the negatives go, the main disappointment in Tesla’s report came on the profitability front. Tesla’s margins fell across the board, with total GAAP gross margin declining 185 basis points year over year to 18%. The company’s operating profit fell 40% year-on-year to $1.6 billion. Its Adjusted EPS came in at $0.50, down 31% year-over-year and missing expectations by $0.06. With that, Tesla’s profitability continues to struggle in the current market environment as cost pressures, driven in part by tariffs, have significantly weighed on the bottom line. Chief Financial Officer Vaibhav Taneja said Tesla incurred about $400 million in tariff-related costs during the quarter, split between its automotive and energy segments. It’s also worth noting that the company’s results were affected by lower revenue from regulatory credits after the Trump administration officially eliminated the emissions credit market earlier this year.
As for the outlook, Tesla said forecasting volumes is difficult amid changing electric vehicle policies and current geopolitical uncertainty.
Wall Street analysts remain divided on Tesla, as evidenced by the stock’s consensus rating of “Hold.” Of the 42 analysts covering Tesla, 14 give it a “Strong Buy” rating and two a “Moderate Buy” rating, while 17 recommend a Hold and nine give it a “Strong Sell” rating. Tesla bulls remain bullish due to Musk’s bold promises in artificial intelligence, robotics and self-driving technology, while bears point to profitability struggles with further weakening ahead, an unwarranted valuation (263.30x non-GAAP forward P/E), and a damaged brand image. Notably, the stock is currently trading at a premium to its average price target of $376.37.
All in all, it is difficult and highly speculative to assess the potential of the Optimus project at this time, as revenue generation is still years away and the timeline could be extended further due to the challenges mentioned above. Therefore, I don’t think buying TSLA stock right now simply for the optimism around Optimus is a smart move. I think a wait-and-see approach is the best course of action in this case, especially since Tesla’s core business faces “near-term uncertainty due to changes in trade, tariff and tax policy.”
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At the time of this publication, Oleksandr Pylypenko had no (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
