Billionaire Ron Baron is the founder and CEO of Baron Capital, an asset management company that oversees several mutual funds. The Baron Partners Fund returned 29% annually over the last five years, while the S&P 500 (SNPINDEX: ^GSPC) returned 15% annually over the same period.

Tesla (TSLA -4.68%) has consistently been the largest position in the portfolio. As of December 2024, it accounted for 41% of the fund, up from 38% in the prior year. And Ron Baron remains bullish. He recently told CNBC that Tesla may be worth $5 trillion within a decade. That prediction implies 285% upside from its current market value of $1.3 trillion.

Baron sees the catalysts for that price appreciation in autonomous driving technology and robotics. Here are the important details.

Tesla reported disappointing financial results last year

Tesla reported disappointing financial results in 2024 as it balanced high interest rates (which hurt demand) and price cuts (which hurt profitability). Deliveries fell 1% to 1.79 million, the first annual decline in company history. Revenue increased by just 1% to $97 billion, operating margin narrowed by 2 percentage points, and non-GAAP net income fell 22% to $2.42 per diluted share.

On the bright side, Tesla narrowly held its leadership position in global battery-electric car sales despite losing 2.5 percentage points of market share last year. And CEO Elon Musk says key catalysts this year will lay the groundwork for an “epic 2026” and a “ridiculously good” 2027 and 2028. One such catalyst is a sub-$30,000 vehicle reportedly called the Model Q, set to launch in the first half of 2025.

More importantly, Tesla reported a 1,000-fold improvement in its full self-driving (FSD) software last year, measured by miles between critical interventions. As such, the company will launch an autonomous ride-sharing (robotaxi) service in Austin in June 2025, followed by “several other cities in America by the end of this year,” according to Musk.

Meanwhile, Tesla is using its artificial intelligence (AI) expertise to build humanoid robots called Optimus. The company plans to manufacture 10,000 Optimus in 2025, and Musk says they will be doing useful work in Tesla factories this year. He also thinks Tesla may sell Optimus models to other companies as early as the second half of 2026, though he admits there is a great deal of speculation in that timeline.

Autonomous driving technology could be a $10 trillion opportunity for Tesla

Alphabet‘s Waymo launched its robotaxi service to the public in Phoenix in December 2018 and has since expanded to several other cities. I have personally ridden in a Waymo in San Francisco, and the experience was incredible. So, Tesla is behind the curve. However, the company has theoretical data and cost advantages that may help its autonomous ride-sharing platform scale more quickly in the future.

• Data advantage: Tesla’s fleet includes millions of autopilot-enabled cars that capture video data. Ark Invest estimates Tesla collects data from 3.5 billion miles annually, while Waymo collects data from 37 million miles annually. That means Tesla is collecting data about 90 times faster than Waymo, so the company should be able to more effectively train the AI models that power its FSD software.
• Cost advantage: Tesla’s FSD platform is powered entirely by computer vision, meaning the software makes driving decisions based solely on inputs from eight external cameras. As a result, the company says it can build a robotaxi for $25,000. Comparatively, Waymo’s sixth-generation cars have 13 cameras, 4 lidar, and 6 radar. That equipment alone costs as much as $100,000, according to co-CEO Dmitri Dolgov.

Here’s the bottom line: Robotaxis could be transformative for Tesla. Ark Invest estimates robotaxis could be a $10 trillion addressable market by 2030, and Elon Musk says FSD software could push Tesla’s gross margin to 70%. Comparatively, the company reported a gross margin of 17.9% last year.

Image source: Getty Images.

Humanoid robots could be another $10 trillion opportunity for Tesla

Musk recently told analysts that Tesla has “the most advanced humanoid robot by a long shot.” Initially, Optimus will handle burdensome or dangerous factory work, but the robot will eventually have enough dexterity and precision to thread a needle and play the piano, which opens a near-infinite number of possible applications.

As mentioned, the company plans to build about 10,000 Optimus in 2025, and Musk says those robots will be working in Tesla factories by year-end. Data gathered from the robots will inform production decisions on the second model, which is expected to launch in 2026. So, Tesla may sell Optimus to other companies as early as the second half of next year.

Importantly, on the fourth-quarter earnings call, Musk said, “Optimus has the potential to be north of $10 trillion in revenue.” He has also said on several occasions that Optimus will eventually be the most valuable product Tesla makes, so much so that it may be the most valuable company in the world. “There is a path where Tesla is worth more than the next top five companies combined,” Musk recently told analysts.

Tesla stock looks absurdly expensive, but it may appear reasonably priced in hindsight

Wall Street expects Tesla’s adjusted earnings to increase by 22% annually through 2027, making the current valuation of 140 times adjusted earnings look absurd. However, the consensus estimate does not account for potentially explosive earnings growth after the introduction of autonomous ride-sharing services and humanoid robots.

Admittedly, Tesla is a very risky investment because expectations about its AI products are already factored into the valuation to some degree. That means the stock could crash if Tesla fails to scale its robotaxi and robotics businesses. But it also means the stock could be worth much more in the future if the company realizes those goals. Investors need to decide for themselves which outcome they see as most probable.

Personally, I believe Tesla will eventually make good on its promises, which may lead to a $5 trillion market value. But I have been wrong before.