When Tesla (TSLA, Financial) reported its earnings results on Wednesday, Wall Street was expecting good news, and that’s exactly what they got; the electric vehicle maker posted stronger-than-expected earnings and revenue, despite persistent supply chain issues.
However, CEO Elon Musk was all too quick to draw attention away from the electric vehicles that make up the core of Tesla’s profits. Warning that supply chain issues would persist throughout 2022, the company is apparently shifting its focus away from electric vehicles in order to prioritize autonomous vehicle technology and humanoid robots instead.
Following the setbacks for Tesla’s main source of profits as well as the reveal of a moonshot project that is a long way away from becoming a tangible product, shares lost 10% on Thursday:
Optimus Subprime
When discussing Tesla’s product map on the fourth-quarter earnings call, Musk said that the Roadster, Semi and Cybertruck would “hopefully” be in production by next year. Originally, the Roadster and Semi had been scheduled for 2020 and the Cybertruck for 2021, but clearly that didn’t work out as planned.
Musk quickly shifted gears away from automotive delays to talk up the humanoid robot that Tesla is developing:
“So, in terms of priority of products, I think actually the most important product development we’re doing this year is actually the Optimus humanoid robot. This, I think, has the potential to be more significant than the vehicle business over time. If you think about the economy, it is — the foundation of the economy is labor. Capital equipment is distilled labor. So, what happens if you don’t actually have a labor shortage? I’m not sure what an economy even means at that point. That’s what Optimus is about. So, very important.”
Musk said that the first use of Optimus would be at the company’s own factories. If Tesla’s engineers really can pull off the sci-fi feat of making a humanoid robot capable of performing the same tasks as any human worker, then the company could theoretically become the new “foundation of the economy.”
That’s a pretty big “if,” as it relies on actually developing such a robot and doing so before a competitor gets their own humanoid robot off the drawing board. Tesla’s robot is still a long way away from becoming a reality. In fact, Tesla hasn’t even revealed a prototype yet; last August, when the concept was unveiled, Optimus was represented by a human dancer in a spandex suit.
Shifting gears or shifting the public’s attention?
With Musk hyping up Optimus on the earnings call, the question is whether or not Tesla is truly shifting its focus away from electric vehicles to focus on robots.
It would seem foolish to risk losing Tesla’s position as the top electric vehicle maker to focus resources on Optimus instead, but if Musk believes the greater market opportunity lies with humanoid robots, then it is not outside the realm of possibility.
However, given the ongoing automotive supply chain issues, it is also possible that Tesla needs to focus on other things in order to avoid sitting on its hands and waiting for them to be resolved.
Since developing new vehicles is a far greater drain on microchip resources than ramping up production of existing models, it seems more profitable for the company to prioritize increasing production capacity at its Gigafactories.
However, without new models being released, Tesla needs to hype up one of its other projects in order to keep investors interested. Going too long without any exciting news would likely lead to investors slowly selling off their Tesla shares, and the company can’t allow that to happen since it has long relied on investor enthusiasm to secure funding.
The timeline is moving out
From its founding in 2003, it took Tesla about seven years to start producing electric vehicles. The stock didn’t really begin gaining ground until the company was able to produce two quarterly profits in a row in 2019, and it wasn’t until 2020, when the market at large started anticipating a future in which all gas-powered vehicles would be replaced by electric vehicles, that the stock shot up by leaps and bounds.
The electric vehicle market is still many years away from maturing, but competition is growing fast since most established automakers have recognized that their long-term growth potential hinges on providing alternatives to gas-powered vehicles. From this point, Tesla’s stock valuation will likely be a volatile back-and-forth between high growth rates and declining market share.
The Optimus robot could become even bigger than Tesla’s electric vehicles, or so the company hopes, but the time from conception to production and then from production to market frenzy is likely to be a long one. Retail investors who hope Optimus will send Tesla’s stock to new heights might find it best to wait for a viable prototype and a stock price that falls more in line with Tesla’s earnings, both of which seem a long way off.
