Episode 57 | Tesla as a Must-Watch Investment in AI, Energy, and Automation

In Episode 57 of “Market News with Rodney Lake,” Professor Lake, director of the GW Investment Institute, analyzes Tesla, a small but significant holding in the GW Investment Institute portfolios. He frames Tesla as more than an EV manufacturer, highlighting its leadership in real-world AI applications such as autonomous driving, energy storage, AutoBidder software, and the Optimus humanoid robot. Lake also weighs Elon Musk’s visionary leadership and capital allocation into future markets like robotaxis against risks such as political activities and executive compensation. Overall, Lake positions Tesla as a key player in the evolving AI, energy, and automation landscape, cautioning investors to consider the previous revenue decline in 2025, changing legislation, and high valuation.

Chapters

• 0:00 Introduction
• 4:29 Business
• 12:47 Management
• 18:10 Price/Valuation
• 20:03 Balance Sheet
• 21:13 Conclusion

Transcript

Thank you for joining Market News with Rodney Lake. This is a regular program for the GW Investment Institute where we talk about timely market topics. I'm Rodney Lake, the director of the GW Investment Institute. Let's get started.
Welcome back to Market News at Rodney Lake. I'm your host, Rodney Lake. We're coming to you from the George Washington University School of Business. Duquès Hall. Duquès family studio right here in the heart of Foggy Bottom, Washington, D.C.. Welcome back to the viewers on YouTube. If you're watching there and if you're listening on Spotify, if you're listening on Apple, Amazon, thank you for coming back.
And welcome to anybody that is new. This is a podcast for the GW Investment Institute. We have a series of student investment funds here at GW that our students learn how to invest, learn how to think about investing and invest a little over $10 million of endowment capital. That's part of the overall university endowment. And we put them in charge of that, and we try to train them as best we can.
If they really want to get into the financial services business, for example, whether that's asset management, investment banking, sales and trading or any really, you know, any part of the ecosystem that they want to go to, and increasingly, technology is a huge, you know, enormous part of that. We're trying to train them to do just that. We give them that basic training and they invest our portfolios for us and we're grateful for that.
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Our students are always doing great work. All right. We're in August 2025. The semester is about to get started for the fall. Today we're going to be talking about a company. Typically we talk about bigger companies in our portfolio or oftentimes let's say, but today we're going to be talking about a company that everybody knows very likely, but it's not a huge position.
We own it in two of our portfolios, not even all of our portfolios. For the GW Investment Institute. And that company is Tesla. Ticker TSLA. Now, lots of people know this company. Again, not a huge company for us, but I do think it's an important company to watch, to pay attention to. We had Dan Ives on, for example, on the podcast not that long ago, talking about how he thinks that, you know, Tesla certainly has a bright future and AI being at the center of that.
So I think it's worth talking about as we kick the semester off, we're going to be asking our analysts, our student portfolio managers to be checking this out. Remember, not investment advice, entertainment and educational purposes only here for the show Market News with Rodney Lake today talking about Tesla. We'll go over using the business, management, price/valuation, GW investment Institute framework to evaluate this company.
And again I'm sure many of you know this company. It's in the headlines almost all the time. There are important things to go over and things to be thinking about. If you watched the recent episode where we talked a little bit about the AI game Tesla being included in that, you know, in Google, for example, on the Full Self-Driving and how that might reshape you know, transportation, how that might reshape the way that people interact with the world.
And then who collects, you know, the value there? We're investors. Yeah. We're trying to make money, for our portfolios and for our client in this case is the University. And we really want to make sure that we're best positioned for the future. And really, in our in our case, we're trying to train our students on how to do that.
How do they do that analysis? How do they best understand what's happening now? You know, maybe that's shaped by what's happened in the past, for sure, but also be really focused on what do we think based on all that, what's happening today and really what's happening in the future, and how do we best position our portfolios for that?
And from that training, hopefully they can take that out and deploy that, against whatever type of job that they want to do. We think that's great training. And it's been working so far. We'll continue to do that. Evolve that continuous education, continuous improvement, for ourselves as well. We always have to get better too at training, the people that come through our doors, our students who are superstars.
And we appreciate all their hard work. All right. So let's get in. Business, management, price/valuation, balance sheet for Tesla. Again I'm sure most people have heard of this company. No this company it's in the headlines for a variety of reasons. Nearly every day. All right. Business. So most people, well, many people would say this is just a car company.
But for for me and for us, this is really a technology company. Obviously, the cars are one big platform that they have, and certainly the one that drives the most revenue. Right now, they're also an energy company. They make grids, you know, grids scale storage. Excuse me. That's super important. And becoming more and more important.
And if you're watching closely what's happening with AI, you're going to need, you know, that type of storage. And you really need the power to be so consistent that when you have variability in the grid, even a little bit, down to, let's say that the millisecond that can that can introduce problems. And so having really things running on the battery where you have a lot more precision, for the software that's running that versus, you know, just, the electricity coming off the grid. The grid’s, electricity has to be continuous, right?
There. Until recently, there hasn't been really grid scale storage except for, what are called water dams that, pump hydro dams that, you know, pump the water back up the hill, when power is cheap, and then they sell it when it's expensive. But, you know, now you're having, battery packs the Megapacks for Tesla.
So that's an important component. And now what you would really think about. And Dan Ives talked about this. What's the big play for Tesla is really the real world AI applications. This is probably the biggest, you know Cathie Wood talks about this, the biggest AI real world project out there. And so even if you're not invested in it as an analyst, investor, business person, I think you should definitely be paying attention to what they're doing, how they're doing it, and then certainly competitors around that.
So first let's talk about some of the specs for the company. I think, you know, you know the way that they make money right now they're selling cars. They're selling batteries. And certainly now, they're working hard on the autonomous piece. They're selling the energy storage and the systems around that. For example, they sell some solar panels, for example, roof tiles, and those related products.
But let's now, dive into some of the numbers, for Tesla. So market cap, this is a large company trillion dollar market cap as we sit here in August of mid August of 2025. So very large company, part of the what people would call the Mag 7, but let's now, take, take a look at the, the revenue side.
All right. So revenue here, 92 billion. That is through June 30th, 2025, the most recent quarter here. So about 90, 92.7. So approaching 93 billion, gross profit, 16 billion. And by the way, the revenue declined. Actually, that's a minus 2.7%. So not great news there. And the projected, for the full year through December looks like projected -4.6.
There's a tax credit that's coming off. That was part, that was taken out as a result of the Big Beautiful Bill, the $7,500, if you take delivery by September 30th. Not an advertisement. You get it, but you have to take delivery of the car, as an example. So that goes away. So important, incentive there.
And they'll obviously need to rework the pricing and that impacts profitability and everything else. So something for us to pay attention to but declining for this year looks like in revenue overall gross profit 16 billion, 17.5%. You know, not terrible, but not you know, you're not talking about Nvidia type of, gross profit margins or Apple, as an example, a net profit margins of 6%.
So and free cash flow, 5.5 billion. So if you look at those stats, you certainly you're not going to get super excited about those stats as you would when you look at a company like Nvidia, and they're really blowing it out of the water and generating, a ton of free cash flow or Apple, even when you see the stats and Apple generating lots of free cash flow.
But, you know, so why are people excited about this company? Well, on the business side, you know, you have very few opportunities, in the public markets at least, to get access to real world AI projects and certainly run by someone, in this case. And we'll get to management Elon Musk and company, that have delivered across, different categories, including, in this space.
And you think about Space X and you think about, Starlink and you think about Neuralink and The Boring Company and all these, you know, other projects that are running they’re delivering really New Age things, things that, you know, I think, you know, many people thought maybe not be possible. You know, that's a good track record, obviously for, for the management.
So the business that it's in, is obviously more of a mundane business if you think about just as transportation company. But if you think about it as an AI enabled company, and it maybe is, depending on how you define it, the largest AI project. And again, if you don't like the company, if you don't like the management, if you're if you don't want to, you know, understand it, I think not understanding it is a mistake if you don't want to own it.
Obviously that's up to you as an investor, as a business person, as an analyst. But given how quickly things are moving on the AI front, I think it's imperative as an analyst that you at least understand what they're doing, and especially relative to what other people are doing in the AI game, because in the real world AI, they are an absolute leader.
And they have the humanoid robot coming, Optimus, as well. And that the total addressable market, the TAM for that is enormous, right? Everybody's going to have an autonomous robot if they can, to wash your dishes, clean their house, cook food. You know, that market’s big, right? Especially you can finance that. Everyone's going to have an autonomous robot in their house running around, cleaning and doing all the things that you don't want to do that can make you more productive, spend more time with family, all kinds of other things unlock.
And that's right. That has also implications for the way that the world gets redone for the types of jobs that are out there. But as a real world AI project, this is a must, must watch, must watch. So pay attention, and again understand what's going on. So on the business side, you know what's been happening over time.
Let's go back 2021 2, 3, 4. And on the revenue side, 53 billion, 81 billion. 96 billion, 97, 92 right. Decline, projected in 2025 full year that's through December 31st, 93 and then 109 for full year 26. So people projecting an increase there, in the 2026 number, possibly unlock, some of the autonomous driving. They're launched now in two cities.
And so you have it in Austin and you have it in the Bay Area. It's geofenced, meaning there's a specific outline of where they're operating, and mapped, but they're doing it with cameras, which is very different than the way that Waymo is doing it. And they're operating in both those markets too. They're they're also geofenced for the moment, which obviously limits the area where they can operate.
The geofence in the Bay Area is very big, relative to the Waymo for Tesla. But one of the primary differences then is the way that they're deploying it. Tesla is deploying it with cameras, which is a way cheaper option than the way that Waymo's doing it with LiDAR and all kinds of sensors on the car, which makes the car very expensive.
And so mass producing that is very challenging. So Tesla's tact is different. They’re certainly taking a different path. And, you know, people have criticized that. People have, thought, well, that that's the way to go. And so depends where you are as an analyst. Again, you got to think about that. But on the business side, you know, the way that I least think about Tesla right now, it is an AI company.
And it's a real world AI company. And it's certainly it makes cars and it makes battery packs. But part of what's happening on the power side, excuse me, is it's going to be an enabler, in that market, making sure that you have grid scale storage. You also have this software called Autobidder, pay attention to that.
If you really want to dig in to the power side of the business, I would dig into the auto business Autobidder software, which they built in-house, which is fantastic. And I think that's going to be a big stabilizer in their business moving forward. And again, the biggest AI project on the planet right now that you can get publicly traded is Tesla.
So I think you should be paying attention to it. All right. That's the business. Well, so let's move on to the management and we can come back to some of these areas. So the management everybody certainly has heard of, probably Elon Musk and, and people have very strong opinions, on Elon both, you know, for and against and obviously was in the politics.
One of the things that has been a, you know, obviously good about, first, for Elon is obviously the visionary leadership getting this company from really a startup, to an established company, obviously the biggest EV maker in the US, and certainly one of the most dominant EV makers in the world. And, you know, and a brand that lots of people appreciate, some people don't like, but lots of, a brand that people appreciate.
And getting into $1 trillion market cap. No easy feat. And so, you know, as far as the visionary leadership getting it from a startup to where it is today, remarkable. You know, and that's one of many companies that that Elon Musk has done. So really great track record for innovation, new technology, deploying new technology and, you know, getting the most out of this business and and really getting them to stay on the front foot with with that innovation.
And if you watch the episode on Apple, one of the criticisms that we have for Apple right now on the capital allocation and management side is really a lack of innovation. And we're okay with obviously Apple in the past being second to market like on the iPhone, but really kind of falling behind Tesla would be, on the other end of that where they're really on the front foot on that innovation and really pushing their teams hard, to do that.
Now, on the capital allocation side, you know, pushing hard into the, the robotaxis and pushing hard into Optimus, we'll have to see how that works out. But that's what management thinks the future is. That's what management thinks. Elon and company. That's where they think we got to get to those markets. We have to unlock those markets. That's where it is.
And then growing the power business as well. That's part of that AI world where you really have to have, you know, a much more stable grid to support all of this compute as an example, that's happening on these large language models, including one of, one that Elon Musk is involved in at X AI Grok, they built effectively their own power plant in Memphis, Tennessee, and, you know, lots of, Tesla, you know, Megapack batteries to help support that.
And so a lot of this stuff is interrelated. And I think it's, you know, sometimes a challenge to work through. And how do you think about all this together? And where do you think this is all going? But for a publicly listed vehicle, Tesla is is one way to play this. And certainly on the management side, Elon Musk has a had a fantastic track record on the innovation.
Now the other part of this has been on, you know, getting involved in politics, being, you know, some people think, you know, that obviously it's out there and, you know, criticism around maybe he's spread too thin. He has too many things going, and one of the things that's been out there is the pay package that got pushed back by the Delaware, courts.
And so that's, you know, they announced, what they called a down payment. A package about a third of what was out there. And so but these are enormous pay packages. But it's only to come with these really high benchmarks. Really? No other CEOs have taken that. And so when you talk about and we talk about this in class alignment of incentives, Elon Musk has absolutely had this alignment, not getting paid until the numbers are really ridiculous.
On the growth side, you know, when they first announced the pay package long ago that they got pushed by by Delaware, most people laughed it off. Is this is not even going to be possible. And this is ridiculous that a CEO would agree to this. No other CEOs would even agree to to a package that's like that.
And then he achieve those goals. And obviously then generated lots of wealth for shareholders. And then Delaware, seemed to think otherwise. Delaware courts seemed to think otherwise. And so, that's all still playing out. We'll we'll see where that all lands. In the meantime, they moved to Texas and moved the company to Texas. And so we'll see how this all goes.
But important, at least from the investment standpoint. Investor, analyst, business person, alignment of incentives. Absolutely. There for Tesla. On the management side, capital allocation obviously got to do your work. You have to understand that. What do you think? At least in my mind on the capital allocation is in the right place, going after those big markets, and really trying to tackle those big markets.
That's autonomous driving, that's the autonomous robots as well. Huge total addressable markets reshaping the way that the world works. And Tesla being at the forefront of that, you know, good capital allocation, whether it succeeds or not is different from what you think on the do you think it's the right complication? Does it succeed? We don't know, right, that that's you can go on to the track record, but we definitely do not know what's the outcome of that.
And let's say that all that happens, maybe they're not the winner, right? And maybe it's a winner take all. Or maybe they participated, but not to the extent that the valuation is there, which we'll get to. So and before we move on to the valuation, let's. That's great. The business here, high marks for the business. Not on the stat side but where they're going.
So could give the business, let's say a seven and a half to eight. On the management, obviously, you know, some very good things on the management side and some some things where you're really, you know, some question marks around, you know, time allocation. Does it make sense to be so involved in politics? Again, as a business person, you think, well, maybe that time is better spent, at Tesla.
So, you know, we can give a seven and a half eight there as well. Now we go to the valuation. Now here's where there's quite a lot of criticism, for what's happening on the valuation side. So if you look at what's going on, you know, for Tesla's valuation, this has been a constant concern, for people, you know, since really, let's say Tesla has been a public company.
But the current valuation, the forward PE, is 192, so 192 times. So this valuation is really high. And it can and it's been high. So if you look at the valuation over time, it has never been low. Let's say at least not for any extended period of time. So the median for the last ten years is 136.
Okay. So we're we're even over that right now. The high over 300. So not great value on the valuation side. So you have to think about that. These things are going to pay off to get comfortable with that valuation. Now you cannot not invest in things only because of the valuation. So that's something, you know, as a fundamental analyst, if you're steeped into the Ben Graham world and Warren Buffett, it gets very difficult to pay that type of multiple for these companies.
But if you look at the total addressable market for the some of the AI plays, well, should you ignore it also? And so this is where the challenge comes in. And obviously if they're selloffs and you think you can take advantage, that's a different story. But if you're buying it today you're paying up. And so that's something that you have to consider.
So on the valuation side, you know, it's a really high valuation at the moment, especially relative to the S&P and even relative to itself, it's it's on the high end now. People are giving credit for those big markets. Right. And so, you know, time will tell whether that's the case or not. So you can give the valuation, let's say a 5 or 6, for that.
And then you move on, to the balance sheet, the balance sheet here really, you know, certainly not incredible, balance sheet. But you're going to sleep at night, you know, 36 billion if you look at the trailing 12 months, through June 30th, and 13 billion in debt. So you're going to have net cash, 20 billion.
Not not plus. You're not you're not really that concerned generating 5.5 billion of free cash flow. And if you look at over time, they've been pretty conservative and gotten the balance sheet in better shape. You know, in 2021, you had 17 billion, in 22, 22 billion. This is cash, 29 billion at 23, 36 billion, in 24, 36 billion.
Now net so really net cash for all of those years, going back to 2021. So really, you know, good job. Kudos. Especially in a capital intensive business, having such a conservative balance sheet is a great thing. Again, that helps to sleep at night. Now, they do burn a lot of cash, you know, building things.
And so it is more of a capital intensive business than other businesses that we talk about, like Apple, like, you know, Nvidia, to compare the two. So, you know, balance sheet. Good. Let's give it an eight, on the balance sheet. So if we pull the scores together, you're talking about, you know, the business seven and a half, eight.
Management. Seven and a half, eight. The valuation again. Very high valuation, you know, let's say a six. And if you look at, what's happening on the balance sheet, you can give seven, half eight there. And so overall, maybe you're talking to 7.25 or, you know, and depending on how you want to blend it and you, you want to pull one up or down, you know, let's say you're talking about, you know, 7.25 to 7.5 overall for Tesla.
And so again, not a great score for some of these things. And overall an okay score. Something to watch. Not a huge position in our portfolio at the GW Investment Institute, but our students need to watch this. I do think as an analyst, as a business person, as an investor, we have to pay attention to this for the real world AI applications and making sure we understand what it's doing relative to what other people are doing, where this market is today, and especially where we think the market is going into the future.
And how do we participate? Is it through Tesla? Is it some other way? But we have to figure that out, as best we can. And our analysts will be working on it this fall semester when we get back to work fall 2025. That's it for this episode. For Market News with Rodney Lake. Thank you. See you on the next episode.