Why Elon Musk's Big Bet on Robotics Comes With Significant Risks for Tesla Shareholders

Tesla (NASDAQ: TSLA) is an electric vehicle (EV) stock that trades like a high-powered tech stock. And that’s because CEO Elon Musk is able to sell investors on a tantalizing growth story that goes beyond just EVs. Musk sees the business as being more of an artificial intelligence (AI) and robotics company, and investors have been valuing it as such.

The company is in the midst of a significant shift in its operations, as it looks to invest more heavily in AI. But the greater the move away from its core operations, the greater the risk there can be for Tesla. While robots and AI can make for compelling growth opportunities, they can also add a ton more risk for the stock.

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Tesla to more than double its capex spending in AI push

Tesla’s business is constantly evolving, and one of the big opportunities Musk sees for the company is in robotics. Its Optimus robot is a cornerstone of its long-term growth strategy, with it potentially being able to perform repetitive and unsafe tasks for humans.

The company is planning to stop making Model S and X vehicles and instead will begin producing robots at a factory in California, in the clearest sign yet of how a shift toward Optimus is affecting the business. This year, Tesla plans to spend $20 billion on capital expenditures (up from $8.5 billion a year ago), focusing on AI, robotics, and driverless technologies, in what is part of a broad transformation for the business.

Musk has previously stated that by the end of 2027, the company plans to sell its Optimus robots to the public, believing that by then, “You can basically ask it to do anything you’d like.”

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NASDAQ: TSLA

Tesla

Today’s Change

(-4.05%) $-16.33

Current Price

$386.99

Key Data Points

Market Cap

$1.5T

Day’s Range

$386.95 - $396.32

52wk Range

$214.25 - $498.83

Volume

893K

Avg Vol

66M

Gross Margin

18.03%

Why focusing on robotics can be risky for Tesla

Optimus robots are an intriguing growth opportunity for Tesla, but they aren’t without risks. If the company shifts away from EVs, where margins are already being squeezed, and into an uncertain opportunity such as robotics, that could result in the business becoming unprofitable again.

Investors are already paying a significant premium for the stock, with it trading at nearly 400 times its trailing earnings – that’s going to come with some extremely high expectations. Investors may already be pricing in the success of Musk’s growth strategy and pivot to robotics. The problem is that if it falls short of those expectations, the stock could be due for a significant sell-off.

Given the company’s inflated valuation and question marks around Tesla’s future growth, I’d avoid the stock and instead take a wait-and-see approach with it.