Zinger Key Points
- Separating AI & Robotics in financial statements will prompt institutional investors to attach a value to Tesla's AI efforts, says Black.
- Tesla could provide fleet size, FSD take rates, revenue/customer, and other metrics that could establish a 'path to monetization, he says.
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Tesla, Inc. TSLA shares have been on an eight-session winning streak as investors begin to factor in potential fundamental improvement, and a fund manager on Sunday detailed his take on what the electric vehicle maker has to do to augment its valuation.
What Happened: For institutional investors to attach value to Tesla’s artificial intelligence efforts, the company should begin to break out AI as a “separate” line with relevant metrics in their financial statements, said Future Fund Managing Partner Gary Black. This is similar to how Tesla currently breaks out Automotive, Energy and Services.
“TSLA could provide fleet size, FSD take rates, revenue per customer, and other metrics that could establish a ‘path to monetization,” Black said.
The fund manager noted that when he made this point to Tesla’s Investor Relations in February, the executive team said the company would break out AI separately when AI is material from a revenue standpoint. The Energy business, with $7.5 billion in annualized revenue, makes up 8% of the total revenue, he said.
The full self-driving tech and robotaxi may have to generate $1 billion+ revenues or 1% of revenues annually for Tesla to break it out separately, Black said. “We estimate FSD revenue is now approaching $1B/year annualized, of which a high percentage drops to operating profit,” he said, underlining the high-margin nature of the business.
“When institutions can see a path to AI monetization and model it with metrics that TSLA updates quarterly, similar to what TSLA provides on Energy today, WS will start including AI in its valuation models,” Black said. “With the 8/8 robotaxi event fast approaching, the 2Q earnings report might be an appropriate time to break out FSD as a separate TSLA business.”
See Also: How To Buy Tesla (TSLA) Stock
Why It’s Important: Tesla’s automotive business has been on the wane amid an industry-wide demand slowdown. The company’s price-cutting strategy to kickstart volume growth did not yield the desired result. The company has been reporting volume declines for two straight quarters now and its auto gross margin, excluding regulatory credits, has taken a hit due to the price cuts.
Most analysts have now turned their focus to Tesla’s ancillary businesses, which could help mitigate the core auto business’ weakness. Tesla’s AI & Robotics business includes FSD, Dojo Supercomputer system, Dojo chip, neural networks and Tesla bot.
Cathie Wood-run Ark Invest, which predicts a $2,600 price target for Tesla by 2029, expects the bulk of the company’s revenue, EBITDA and valuation to come from robotaxis. The firm expects the robotaxi business to account for 63% of revenue, 86% of EBITDA and 88% of enterprise value.
The Aug. 8 robotaxi unveil event will likely shed more details on the near-term opportunity from the business.
Tesla ended Friday’s session up % at $, according to Benzinga Pro data.
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