«Power is always more important than money»: will it prevent Tesla from becoming a tech giant

Analysts expect Ilon Musk's Tesla to transform from an automobile company into a diversified technology company, where energy storage systems, unmanned cabs and even humanoid robots could become the main business drivers. But this is all a matter of the distant future, and in the meantime Tesla's business is being killed by politics.

By unexpectedly entering politics last year, Musk himself did serious damage to Tesla's brand and business: he spent more than $250 million of his own money on Trump's campaign and participated in an unprincipled mass firing of government employees and the destruction of several federal agencies. After his tenure in the White House ended, investors seemed to exhale. But politics did not let him go;

This week, Musk got into a tiff with the US president. The businessman sharply opposed Trump's «Big Beautiful Budget Bill,» which the House of Representatives approved by a one-vote margin in May: he called the document a «disgusting abomination» and said it was filled with «huge populist» spending. 

The bill would increase the U.S. budget deficit and national debt (the latter would rise by $2.4 trillion over a decade, according to a fresh estimate by the Congressional Budget Office). Musk called on congressmen to «kill» the bill, as well as eliminate the elimination of tax credits for electric car buyers.

Trump responded by threatening to tear up government contracts with Musk's companies and eliminate subsidies for them. According to data from Bloomberg Government, SpaceX and Tesla's combined revenue from unclassified federal contracts has totaled $22.5 billion since fiscal 2000. 

As a result, Tesla shares collapsed 14.26% to $284.7 on Thursday, and the company's capitalization fell by more than $152 billion.On Friday, the company's securities rose 3.67%.  

Even after Thursday's drop, Tesla's market performance remained phenomenal, with a capitalization of $917 billion and a capitalization to earnings ratio (P/E ratio) of 140. At the end of May they were $1.2 trillion and over 180 respectively. Such incredibly high figures (Nvidia, Microsoft, Amazon, Apple and Alphabet had an average P/E at the end of May was only 32.2) are largely due to the fact that investors are hoping for high profits for Tesla in the distant future;

While electric cars now account for 90 percent of Tesla's revenue, they account for less than a quarter of its market capitalization, according to a March analysis by Reuters of half a dozen models from banks and investment firms. 

In such models, Tesla's capitalization valuation is typically broken down into several categories. The first is the automotive business, including charging (now 90% of revenue). The second is the energy generation and storage business, Powerwall residential batteries and Megapack commercial and industrial batteries (10% of revenue). There are three other businesses that are not yet generating anything: robotaxis, licensing and subscriptions to unmanned driving technology, and Optimus humanoid robots. 

The major share in capitalization is related to unmanned driving technology. 

In Bank of America's model, half of the company's value comes from robotaxis and 28% from drone driving software subscriptions, while Morgan Stanley's model gives 21% and 39%, respectively. Truist Securities gives these businesses 17% and 21% weightings, compared to 34% for robotics and just 9% for automobiles.

Musk said in May 2022 that unmanned driving technology is critical to the company's future, «It's the real difference between Tesla costing a lot of money and costing virtually nothing.» Robots, in his view, could generate $10 trillion in revenue for the company in the long run. Tesla could produce thousands of robots this year to use in its factories, and by the end of the decade, Musk predicts, it could be producing millions a year. Thanks to these technologies, Tesla could become the most expensive company in the world in the future, the businessman hopes.

But so far his main business, electric cars, has been slowing down. Last year, Tesla's car sales fell for the first time, down 1% to 1.79 million, even though Musk told investors in 2023 that Tesla could ramp up production by 50% a year for the foreseeable future. But 2023 was the peak year: sales totaled 1.81 million, up 38%.

This year is likely to be much worse. In the first quarter, global sales fell by 13%, and the trend is only getting worse, especially in Europe, where Musk's support of right-wing ideology and European populists was perceived particularly negatively. In April, registrations of new Tesla cars plummeted 81% in Sweden, 74% in the Netherlands, 67% in Denmark, 62% in the UK and 59% in France. Analysts estimate sales could total just 350,000 in Q2, falling more than 20% year-over-year, notes investment newsletter The Motley Fool.

At the same time, overall sales of electric cars in Europe grew by 28% in April, while Tesla's main competitor, China's BYD, increased them by 359%. BYD is known for its very affordable models, such as the Seagull, which sell for $10,000 in China. Tesla simply doesn't have such cars - it hasn't released brand new models for a long time.

Just two Tesla models account for 95 percent of sales, said Stephanie Valdes-Straiti, director of industry analysis at Cox Automotive, a year ago. Competitors, she said, are flooding the market in segments where Tesla has nothing to offer.

But in the long run, Tesla will be valued the same way as other tech companies that have gone beyond their beginnings, Morgan Stanley analyst Adam Jonas said at the time, «A car is to Tesla what a video game chip is to Nvidia or selling books is to Amazon.»

Jonas particularly likes Tesla's energy business. In June 2024, he set a $310 target price on the company's stock, setting Tesla Energy's stake at $36. In October, he raised the latter's valuation to $50, which at the time gave the energy division a capitalization of $183 billion. Due to the development of artificial intelligence, which will require a lot of data centers, the demand for electricity will grow rapidly for decades, and here Tesla with its batteries and plants for their production will be on the end, the analyst believes;

Musk noted that Tesla Energy has the highest profit margin in the entire company. The division deployed 31.4 GWh of energy storage capacity in 2024, up 114% from a year earlier, with Q4 growth of 244%. The division's revenue increased 67% and 113%, respectively.

By 2030, U.S. data centers will consume as much electricity as 150 million electric vehicles, Jonas pointed out. And the increase in consumption from 2023 to 2027 would be equivalent to 59 million electric vehicles on U.S. roads, a 21% increase over the total number of vehicles now in service. 

In late May, Adam Jonas reiterated Tesla's «Outperform» rating and $410 target price, attributing this to Musk's return to operational management of the company amid growing competition with BYD and progress in the development of humanoid robots. In his view, Tesla has an excellent chance of being a leader not only in providing AI with energy, but also in incorporating it into various technologies. 

The ensuing spat between Musk and Trump was not foreseen by the analyst.

On June 12, Tesla is scheduled to start operating a robotaxi in Austin, Texas. However, state authorities, which oversee safety on public roads, stand in the way of the company's widespread adoption of robotaxis. 

In Texas, for example, restrictions for unmanned cars are minimal, but in California, where Alphabet's Waymo cabs are already running on the roads, it will be difficult for Musk and his cars to get through;

The reason is the difference in technology. Tesla cars that have the self-driving module have only eight cameras, while Waymo has 14 cameras, six radars and four lidars that use laser pulses to determine the distance to surrounding objects.

So Tesla's cameras may not see obstacles due to oncoming sunlight, for example, as happened in November 2023 when a car in full self-driving (FSD) mode failed to reduce speed and fatally knocked down a woman (the case is now being investigated by the U.S. National Highway Traffic Safety Administration). 

Price is just one advantage cameras have over radar and lidar. According to an estimate by Bloomberg NEF, the sensor suite on the Tesla Model 3 costs just $400, while the Jaguar I-Pace SUV that Waymo uses costs $9,300 

The use of FSD without driver supervision has not yet been approved for use on public roads, notes The Motley Fool. The portal writes that Musk himself does not expect the autonomous driving business to be able to scale before the second half of 2026. For comparison, Waymo already makes more than 250 thousand paid autonomous rides every week in Los Angeles, San Francisco, Phoenix and Austin, the company works in partnership with Uber, whose cars transport 170 million people a month: «Tesla may take years to reach this scale, especially if it will create its own network from scratch,» - writes The Motley Fool.

Assessments of the prospects for the robotaxi business differ differ dramatically;

Analysts at Ark Investment Management, Tesla's shareholder, believe that its share price will reach $2.6 thousand by 2029, and robotaxis will account for 88% of the company's value. By that time Tesla will be able to produce millions of cars for this business, the annual revenue of which will amount to $760 billion (more than now the world leader in revenues Walmart).

Mark Spigel, investment manager at Stanphyl Capital Partners, and Gordon Johnson, CEO of GLJ Research, have a diametrically opposed view. Tesla's approach is «unsafe and will never be so without radar and lidar,» declares Spiegel, who is playing down Tesla stock. As Johnson points out, BYD said in February that it would offer for free, as a standard option, driver-assistance technology similar to the FSD system that Tesla offers in China for $8,000  

«BYD is telling you that there is no value in drone control. In fact, it's so worthless that we'll give it away for nothing,» Johnson says.

Now, in addition to economic factors, Tesla's business may be affected by political ones. Under Trump's budget bill, a tax deduction of up to $7,500 for the purchase of certain Tesla models and other electric vehicles would be eliminated by the end of 2025, seven years earlier than the Joe Biden administration had planned. That would deprive the company of about $1.2 billion in annual profits, according to calculations by analysts at JPMorgan. 

Another Senate-approved bill opposing support for California's electric vehicle sector could strip Tesla of another $2 billion in carbon credits. 

Combined, the measures could cause the company to lose about half of the more than $6 billion in pre-tax profit and interest payments that analysts expect Tesla to make this year, JPMorgan believes.

But that's not all. The budget bill also includes an accelerated phase-out of tax credits for clean electricity producers, which would hit Tesla Energy. «The abrupt elimination of electricity tax credits would jeopardize America's energy independence and the reliability of our power grid,» stated Tesla Energy.

Finally, Trump may start going after Musk and his companies. 

«In the world of politics and big finance, power will always trump money,» wrote after the businessman's altercation with the president, Jon Treacy, publisher of the investment newsletter Fuller Treacy Money. 

There are many examples of this, one of them being the downfall of Alibaba founder Jack Ma, who lost his companies and disappeared from the public eye after a rebuke to Chinese regulators;

«It's time for Musk to do something uncharacteristic of him,» writes Treacy. - He should shut up. The government could do indescribable damage to his business interests. If he decides to turn the fight against the budget bill into a personal crusade, his business will suffer.»