Tesla is a "must own" stock according to Melius Research

Key Concepts

• Full Self-Driving (FSD) Autonomy: Tesla's advanced driver-assistance system enabling autonomous vehicle capabilities.
• AI Chips (AI4, AI5): Tesla's proprietary artificial intelligence processors designed for real-world AI applications in their vehicles.
• Real-World AI: The application of artificial intelligence in dynamic, unpredictable physical environments, such as autonomous driving.
• In-house Production: Tesla's strategy of designing and manufacturing key components like software and chips internally.
• Market Opportunity: The projected economic value associated with the global adoption of autonomous transportation and AI technologies.

Tesla's Investment Case: Full Self-Driving and Autonomy

Melius Research has identified Tesla as a "must own stock," primarily based on its advancements in Full Self-Driving (FSD) autonomy and related features. The latest iteration of Tesla's FSD technology is highlighted as "the spark" that positions the company uniquely in the automotive industry. This perspective suggests that traditional or "legacy" automakers, such as General Motors (GM) and Ford, are currently unable to compete effectively with Tesla's technological lead in this domain.

In-House Manufacturing and AI Chip Leadership

A significant aspect of Tesla's competitive advantage stems from its extensive in-house manufacturing capabilities, encompassing critical components like software and chips. Elon Musk, over the weekend, emphasized Tesla's role as a "global leader in chipmaking." He stated, "Most people don't know that we've been making advanced AI chips, and making these chips are going to enable Tesla to be the leader in real world AI."

Tesla's current vehicle lineup will feature the AI4 chip, designed to power its advanced AI functionalities. Looking ahead, the company plans to integrate its next-generation processor, the AI5 chip, into its cars by 2027. This strategic focus on proprietary AI hardware underscores Tesla's commitment to controlling and optimizing its core technology for autonomous driving and other AI applications.

Market Opportunity and Future Outlook

The potential market for these technologies is substantial. Worthimer, likely from Melius Research, estimates the global opportunity for autonomous transportation and related AI to be between $4 to $5 trillion. Specifically within the United States, this opportunity is projected to be around $700 billion. These figures highlight the immense financial stakes and the transformative impact on the future of transportation that Tesla's advancements in AI and autonomy represent.

Conclusion

Tesla's valuation as a "must own stock" is strongly linked to its pioneering efforts in Full Self-Driving autonomy and its strategic commitment to in-house AI chip development. With the current AI4 chip and the planned AI5 chip for 2027, Tesla aims to solidify its leadership in "real world AI." The projected multi-trillion-dollar global market opportunity underscores the significant economic and societal impact of these technological advancements, positioning Tesla at the forefront of the future of transportation.