A lot of investors see Tesla (NASDAQ: TSLA) stock as a major beneficiary of the artificial intelligence (AI) boom. ARK Investment Management portfolio manager Cathie Wood is one such investor – she sees the electric vehicle (EV) company as the “largest AI project on earth”.
Yet while Tesla is no doubt a leader in the AI space today, I see a scenario in which the technology hurts the automotive company. I actually think there’s a possibility that AI could end up crushing Tesla stock in the years ahead.
The AI threat to society
It’s looking likely that we are going to unfortunately see many AI-related job losses in the years ahead. That’s because the technology can now perform a lot of the tasks that humans do at work, day in, day out.
Already, the layoffs have begun. Some companies that have announced AI-related job losses in recent months include Amazon, Salesforce, Klarna, Commonwealth Bank of Australia, and Dow Inc.
Sadly, I expect to see more of these kinds of announcements this year. And I think 2027 could be the year where things really start to accelerate.
The issue here is that at some stage, consumer spending may weaken significantly. Not only will a lot of people be out of work but others will be afraid to spend their money because they’re worried about losing their jobs.
How it could impact Tesla
Now, this kind of backdrop could have major implications for Tesla. Because at the end of the day, it’s a consumer company – it sells cars.
If this scenario plays out, fewer people will be able to afford its products. So its revenues and profits may take a huge hit.
Note that in previous economic downturns, car companies have been hurt badly. For example, during the Global Financial Crisis of 2008/2009, US car sales nearly halved.
What consumers tend to do in an economic downturn is hold off on buying a new car and instead, try to squeeze more miles out of their existing vehicles. Typically, major purchases like this are postponed.
What about humanoid robots?
But could Tesla’s Optimus humanoid robots potentially save the company? Maybe. It could sell a lot of these to manufacturing companies that are looking to replace human workers. Note that Optimus production is expected to ramp up later this year.
I’ll point out though that these are consumer products too. And if people can’t afford a new car, it’s unlikely that they will be keen to drop tens of thousands of dollars on a personal robot.
Better opportunities in the market?
Now, of course, I could be wrong about all of this. We may not see mass layoffs in the years ahead and Tesla may not see a slowdown in sales.
It may also have success with its Optimus humanoids and its Megablock solutions. Megablock’s essentially a super-sized energy system designed to power large data centres.
But I do think investors need to be cautious with this stock right now. Particularly given the high valuation – the price-to-earnings ratio’s about 200.
To my mind, there are better stocks to consider buying at the moment.
