INTERVIEW: When TSLA Stock Finally Breaks Out - Gene Munster ⚡️

The question is now how big of a player Tesla's going to be in physical AI. And they've made this shift with investors because back when four years ago this was largely an electric story. It was largely about EVs and the growth at that point, you know, we were seeing accelerating growth numbers off of high numbers, 30, 40% kind of delivery growth per year numbers. So now those have kind of gravitated back. They went negative for a few quarters, were kind of around plus 5, 10%ish. So that shift in the story has been about some of the hope around what AI can do in the physical world. But to have this break out, I think we're going to have to see some more tangible results that investors can, instead of dream at night about ultimately what Tesla can do in physical AI, they can start to sleep well at night and start to see some tangible evidence. And that of course is going to come in the form of everything from expansion of robo taxi in terms of miles driven, cities, the number of safety drivers, to anything incremental around Optimus, and eventually is there anything more that they can do with SpaceX. So that's kind of the big picture around the breakout. It really is just reinforcing, adding some more tangible results to this physical AI story.

I would probably put it more on the latter, more on the showing some competence or showing that they're getting product market fit on the scaling side, less about profitability. Profitability still kind of plays into the equation. I want to give just one example of that is when they reported their March quarter, things were fine until they talked about this capex of more than 25 billion. Now, three months ago, they said it was going to be more than 20 billion for calendar '26. And so, from my perspective, going from 20 to 25 billion or 22 to 27 billion, whatever that number might be, is really insignificant when you factor in they got 30 plus billion in cash and they're still running right around kind of break even on a cash flow basis. It doesn't seem to be alarming by any means, but the market did respond negatively to that, which does give credibility to your point that there still is a conversation. They still do care. Investors do care about that profitability. It's a little bit of a headscratcher to me because when you're building something that is really kind of the whole framework about how we think about movement, whether it's human movement or vehicle movement, is likely going to change in the next decade. I mean just longstanding paradigms over the last hundred years could change. I think when you start to look at it from that perspective, it's surprising to me that any investors put any weight into near-term profitability. But nonetheless, I do think that the substance around this really is around, as you said, kind of going from a beta phase. It's a good way to describe where robo taxi is today. Obviously, you know, Cyber Cab non-existent today. Maybe just starting some fractional number of units, but largely non-existent. And I don't know what you'd put Optimus in. They get a little bit defensive when you call it a science experiment, but I mean, that's the reality of where it's at.

You know, like you said, it was highly anticipated, it's become less anticipated. Probably something if you're going to kind of force rank the like the profitability part of the conversation and the opportunity of just expansion of some of these physical AI initiatives, the production delivery report is probably something between two of those, above where the profitability is, maybe below kind of the long-term vision, but they are still, it's still relevant and my sense is that I think it's going to become, this is a contrarian view, but I think that it's going to become more relevant in the future. Not to say that the other things that we're talking about, about the big picture where they're going, that still will be the driver. But I think there's an opportunity for Tesla really to capitalize on what I still see as a big shift in terms of what's going on within automotive and obviously how that could potentially lay the groundwork for future autonomy. And four years ago, we did a tour of meeting with different traditional automotive companies. And I remember one of the themes from some of those companies were just because we've been around here a long time doesn't mean we're going to be here in the future. And I mean they were, this is at the time when there was this peak enthusiasm around EVs. And I look at the recent quarter from Honda as an example. I mean I actually, this is embarrassing but I kind of forgot that Honda made cars. I recently saw an advertisement for Honda and I was thinking are they, is it outboard motors they're selling for or is it for like lawnmowers? What are they? That's right, they make cars. But I mean there is I think this big opportunity that Tesla has around electrification and the bump that we've had more recently around the price of energy and kind of stoking some of the demand for EVs that really still is just a blip on the screen. The bigger picture is this simple future of automotive is going to be electric. The reason is that it's more efficient. It's not a political comment. It's not a renewable energy comment. It's about the, it's just simply more efficient to move things around when you have electrification. And in that case, Tesla has of course the benefit of scale. And these companies that if I go back and look at those companies I talked about four years ago and look at the changes that they've made to their investments in EVs over the past two years, so at least their outlook for what they're going to be investing, on average, it's down by about a third. So they're still investing in EVs, but they're pulling back that by call it a third. And essentially what it does is paints them in a very difficult corner. When EVs start to become more popular, when some of the range anxiety and the charging network, some of those kind of sort themselves out, they're actually left with a very difficult position because they don't have scale. They can't produce cars at an affordable or at a profitable rate. And I think it's going to be even more advantage Tesla. Said a different way is that right now Tesla's business delivery is expected to grow, call it 10%ish this year. I think you could see a scenario within the next 5 years where they're growing again at 20, 30%.

Well, I think I don't think the market believes that. That's what I believe. I think that, I think broader you described it well what traditional auto thinks. I would think if you got them in a candid moment, they would say that they believe electrification is the future, but like you mentioned, it's 15 years away. And at this point, it makes more sense for them to invest in gas. So, I think that, but I believe these things can get traction more quickly. And I think that even if you take their case, let's say I'm wrong that it doesn't get to that 30% growth, that instead Tesla grows at kind of a sustainable delivery growth of 15% for the next decade, something like that. Even if you take that perspective, there still is this crossover point where traditional auto really needs to bite the bullet and move towards electrification. You have to think about your whole product line. Remember, General Motors said that was going to be their future and they've totally backed off on that. And so you at some point there is going to be a point of reckoning. Now that sounds dramatic. It's not going to be a one quarter or one year, but kind of a multi-year reckoning that these automakers are going to have. Now I just point to this. You know what's the accelerant on all of this? It is related to autonomy. And part of the reasons why I don't believe that this is 15 years away is I think we're making a tremendous amount of impact. We can talk about what specifically has happened around FSD, what Tesla's been doing more recently that's causing this breakout in miles driven by FSD, but I think that that alone is going to really elevate the utility at a safety point at a minimum and kind of a convenience factor at a maximum. I think that that's going to really elevate EVs in the minds of consumers and really get traditional auto in a more difficult place sooner than most believe. Have you had a chance to use FSD by the way?

Like I think that just in my testing over the last year, I would say I would describe it as, you know, the breakthrough moment for me probably was in the last couple months. And specifically is that the amount of interventions has gone down to almost none compared to, you know, six months ago. I don't have the exact data with me, but it would, you know, you'd have multiple interventions per day. And it begs the, I think it really is surprising. I think most people don't fully understand this. And you know, for those of you who don't, I think Tesla still has a kind of a two-day program where you can go and take a car out for two days. Highly recommend it. You know, especially if you're skeptical about Tesla, give it a try and I think you will be, I think you'll be blown away at how good it is. And you've probably heard that before, but it's one of those things where you don't fully understand it until you've experienced it. It's still most entertaining. I mean, we've been talking about this for like 6 years, but it's still really entertaining to me to see, I'm old, I'm 55, but to see people 40 and older in these autonomous vehicles, how they respond to people who are 25 and younger, and you can imagine that the 25 and younger could care less that it's autonomy. It's just kind of the way it should be and they don't think twice about it.

Yeah, that's why we always say butts in seats. I remember recently I got elementary kids and them having friends in the car for the first time that were in there and they didn't even care and I kept turning around saying well look at the car it's like it's driving itself and they could have cared less and I think it really speaks to, I mean it speaks to where we're going and ultimately I mean it does speak to the machine. And if you give me like one, if I kind of have just one more minute on the topic, just in terms of what I think, I mean there's this, the piece around technology, there's a piece around trying to predict where the world's going, you know, there's a, for me that's a competition to be right on that to get those trends right. But I think there's also a very human piece to this around what's going on with autonomy and I think some of the reluctance from lawmakers to make the path easier for Tesla and Waymo and if other automotive companies want to get on board. 2024, 43,000 people in the US lost their lives in car accidents. If you take Tesla's data at face value for Autopilot, and I'll put Autopilot and FSD loosely in the same conversation, 7x safer. I do believe that. I think we're continually more distracted as humans and driving. I mean, you take 42,000, 43,000, divide by 7, you get to six. What's the price of, what's the value of 37,000 lives a year? I mean, it blows me away. People get up in the morning, they go to work, they don't come home. And I don't say that to be like an alarmist. I say it because it's silly. It's silly that we have technology out there that can make such a big difference, but we're still like nitpicking at it. Nitpicking in the sense of anything goes wrong. I feel horrible when things do go wrong around autonomy, but I feel equally as horrible when humans make mistakes.

It's a bigger market than what I realized before I started to do more work on it and to kind of, I'll start with a conclusion is that I think that both Tesla and Waymo are going to have a piece at this and will be successful. I think Tesla will be more successful, but I think Waymo has a very large opportunity. I think companies like Uber and Lyft are going to be in some tight spots and traditional auto being in a tight spot. But as far as Waymo, the way I kind of just put some very loose numbers, high level numbers around this is that the last valuation was call it 120, 150 billion dollars. That's kind of earlier on this year. Tesla $1.6 trillion market cap. You can debate about how much that is based on robo taxi and my sense is it's more than that. If you look at the total miles driven and they give out these kind of one-off updates and you have to kind of fill in lines between, but generally I think of Waymo as driving about 50x, 50 times the number of miles that Tesla does. So I kind of think on like a, I think a daily basis it's something like 4 million miles a day are driven by Waymo today. And my sense is it's kind of around 80,000 miles. Now I'm using the Tesla investor deck and just basically feeding it into Grok and asking, you know, calculate what the implied number of miles per quarter is and you can divide it out. You're going to get pretty close. But and then separately, if you look at the number of rides that they talk about and you can do some calculations on the number of vehicles that Tesla has, it kind of comes out to that 50 to 1 kind of metric. So, I mean, if this is a sporting event, the score is 50 to zip. I don't know if that's a football game or a baseball game would kind of have a different dynamic based on what, but needless to say, I think Waymo is doing a great job. I do think that they have a place. I think traditional auto when it comes to autonomy is in a tough spot. I can say this that we have a venture business and so we get the benefit of meeting with companies that are trying to help traditional auto get their game together with respect to autonomy. And one thing that really surprised me is recently hearing about the efforts that Elon made a year ago to reach out to these automotive makers and license FSD to them and across the board they said they don't want to do it. They felt like this is, you know, kind of the long-term holy grail. It's kind of ironic that they're not spending on EVs, but yet still somehow say that autonomy is really important to them long term. But when I look at the tech that's being built, these are really great. These are great founders, companies that are in the best of position, but it is in my opinion very difficult to compete with the scale that Tesla's already built. And so, but Waymo has good scale too in fairness. And so, you know, how they approach the market because they don't make cars, they may have a better opportunity potentially license, I haven't heard as much about that, but license their autonomy. There's obviously a hardware piece that's pretty complicated with Waymo versus Tesla. But needless to say, I think that Waymo does have a seat at the table.

Well, I think it's a high possibility. I would say high as in greater than 50% over the next five years that something happens. And it comes from a view that we have of what SpaceX wants to do. And we're going to see their perspective likely in the next week or so. They'll likely be public in the next two months. But my sense is that they're going to, SpaceX will position themselves largely as kind of this internet space distribution company and the launch business as well. Kind of what you'd think people would think about SpaceX. But I have a sense that over the next year, two years, and this is where it starts to impact Tesla, is that the investment thesis around SpaceX is going to become a sovereign AI company. And sovereign AI basically means that they control the whole stack. Everything from energy to chip design, chip manufacturing, distribution whether it's through what they currently have with Starlink or data centers in the sky to the underlying models with Grok. So they've got this kind of unique approach of owning it all. And when I think about all these topics, we're talking about Optimus and robo taxi and electrification and think about all of Elon's other endeavors that he's involved in. I believe AI is at his highest level of importance. I think that he does see this as an exponential risk to humanity and also sees the opportunity around AI as being bigger than kind of all these parts. So what does all that mean? Is that if in fact the narrative or at least how they're positioning the company and how they want to grow the company is to be this sovereign AI company, there's a blaring hole within that logic and that of course is around physical AI. That's one piece that SpaceX doesn't do and of course Tesla would add that to it. So you can look at kind of the governance issues around this. I think the simple answer is that they're worse than they look. I think they would be able to find a way around that if it's truly in the best interest of those investors. And this is not a price target. This is not investment advice here but just to kind of bring it all together. Tesla's a trillion and a half dollar company today, call it. SpaceX rumored to be 1.7 trillion. It's going to be all over the place once it starts trading. But kind of just roughly think of those two as a $3 trillion company. Nvidia's 5.7 trillion today. If you build sovereign AI and the importance of having AI that can't be disrupted by a government or some third party, if you truly build that, my sense is it would be probably the most valuable company in the world. And so, that Tesla piece is an important part of getting that whole sovereign AI story together.

I'm definitely rooting for it because I think what they're trying to accomplish would be accelerated if they all come together. What's been around for a long time, this has been well documented, is you'll talk to different people at his companies and they'll refer to them working, themselves working for Elon and they don't have, I've had interactions with people with one of the company and then they'll be sending an email, their email addresses with another one of his companies. I mean, they kind of jump back and forth. That of course is relatively limited if you look at the scope of all the companies but I think it is indicative of kind of this idea that they kind of belong together. That's a small part of it. What's more important is when you start to vertically integrate it's pretty clear that you can accelerate adoption. And so you can get kind of goofy like you said it's kind of a fun topic right now is just, you know, what does all this mean together and beyond to say that it does matter to have them under the same roof and I think it allows just for faster revs on the products which when you're in a sprint to become relevant in physical AI speed means a lot. And so I think that I would absolutely root for these two to come together.

I think that, well the way I would say the lead right now, I mean the official lead is with Waymo. I mean, as I mentioned, kind of 50 to 1, but I think the lead in terms of tech is with Tesla. How durable is that lead? I would say that it is, I don't like just throwing adjectives out there. I think it's very durable. Well, what does that mean? What's very durable mean? I think that there's basically two players out there who really matter in this. You could argue what Zoox is doing in autonomy is kind of in the same breath but so I think that this lower cost approach is definitely beneficiary. There is a question about what we know about Tesla's behavior and how does that inform us about how they're going to price rides in the future. As it stands today outside of kind of the initial beta with robo taxi they were, you know, they had the $5 beta or whatever that was, $10, and now they're kind of more or less gravitating near to where other prices are. We haven't seen that aggressive kind of drop. And for a long time, I had thought back to looking at what we've learned from looking at their car business. I for a long time thought that their scale, I mean, doing 5, 10x the number of EVs as their competition would allow them really to plow into this $25,000 attractive. Now, we may eventually see it, but I've been waiting a long time for a cheap EV. Cheap defined as 25,000. Average selling price of a car in the US is about $45,000 today. So, we haven't seen it. Average selling price of a Tesla, which is really, you look at Model Y, 3 combination, is right around 42, something like that, 38, 42. So, they really haven't broken down there. Said another way, I don't expect Tesla to go and just, you know, kind of wipe out the whole pricing. I think that they will be lower priced and that's all you need to be. Typically when people get a Lyft or an Uber they typically price check and they take the cheapest one even if it's 5, 10% cheaper. And so that's kind of how I generally think about it's probably 5, 10% cheaper. One thing I wanted to mention too just on the whole ride sharing we talk a lot about it. I mentioned the number of rides each of them is doing, but just to put some perspective on what's going on is that in the US last year, this 2025, they don't have official numbers out yet, but it's estimated to have been about 3.3 trillion miles driven with a T. Now, back pandemic, it kind of bottomed out at 2.8 or something like that and kind of has been growing. But just kind of think of this as kind of continual growth. If you look at the ride hailing market, largely Lyft and Uber in the US, they do just over four billion rides, average ride is about six miles. So that equates to about 1.5% of total miles driven in the US is related to autonomy, is related to robo taxis. Now the reason why I mentioned that is there's a lot of conversation about the robo taxi market and today the percentage of, I'm throwing a lot of numbers at your viewers here, your listeners, but...