By Jamie Chisholm
Robots and robotaxis will turn Musk’s carmaker into a ‘physical AI’ company, says Baird
Tesla bulls are partly pinning their hopes on people wanting a Musk robot.
Now even small caps have joined the party. The Russell 2000 index RUT just closed at its first record high since November 2021, joining the S&P 500 SPX, Dow DJIA and Nasdaq COMP at new peaks.
It is a sign that the market rally is broadening. That will be welcomed by investors. But that’s not to say some analysts are no longer excited about the big tech stocks that have done much of the market’s heavy lifting of late.
One such is Tesla (TSLA), whose shares have surged 22.6% in just the past month. And now Ben Kallo, senior research analyst at Baird, is upgrading the stock to outperform and raising his price target from $320 to $548.
In a note published Friday, Kallo makes clear this is not about Tesla as a carmaker, where business has been increasingly dour. “Relatively muted stock reactions following a series of less-than-stellar quarters and investor inbounds regarding long-term initiatives lead us to believe focus has increasingly shifted to the future for TSLA,” he says.
Indeed. This argument from Tesla bulls that investors should all but dismiss the falling electric vehicle sales, and focus on the company’s robot and driverless taxi prospects has been ingrained for some while.
But Kallo takes the metamorphosis tale to another level, as he models how the lofty product, market capitalization and earnings targets of Elon Musk’s proposed trillion-dollar pay package may see the share price surge as Tesla ” is increasingly viewed as the leader in physical AI.”
To do this Kallo extrapolates Baird’s own assumptions about Tesla’s future and, crucially, is prepared to use Musk’s own previous optimistic commentary on prospects for the company’s Optimus robots and robotaxis.
“Our exercise and model assume a time period of ten years 2026-2035 with each product goal being achieved at the end of the period and straight line volume growth,” Kallo says.
Musk’s proposed package does still require many more cars to be sold, a cumulative 20 million, in fact. “We estimate that TSLA will have delivered a cumulative nearly 8.7 million vehicles through the end of 2025. With that as a baseline and a goal of 20 million vehicles delivered, a potentially surprising implication is a negative y/y [year over year] growth rate in deliveries through 2035 (-5% annually),” Kallo writes.
Tesla must also reach 10 million active full self-driving subscriptions, which can be achieved by 2035, reckons Baird, if the 20 million of vehicle sales have 50% of buyers choosing the software.
Then there is the target of one million “bots,” not specifically Optimus robots as some initially thought. It’s a more general term that leads Baird to believe Tesla will have additional real-world AI products in the future. However, they add: “For the sake of our exercise, we assume only Optimus and infer economics based on Musk’s comments regarding a $20K per unit cost and an assumed 50% gross margin.”
Finally, Musk’s package requires Tesla to have one million robotaxis operating commercially, Kallo notes. This could be achieved by Tesla’s “ability to draw on customer-owned vehicles to expand its fleet and rapidly scale the rollout.”
Putting all of this together, Baird reckons that if Tesla reaches these milestones in 2035 with volumes equal to the minimums outlined in the pay package then there’s a “pathway for Tesla’s market cap to exceed $5.5 trillion. That would be based on an Ebitda multiple of 65 leading to a share price of $1,412 after taking into account the dilution from Musk’s additional stock. (Ebitda stands for earnings before interest, tax, depreciation and amortization).
But Kallo has what he calls a “bull volume case,” where Tesla achieves in 2035 approximately double the pay package volume milestones, and then the company can reach a $12 trillion market cap, based on an Ebitda multiple of 65, leading to a share price of $3,043 after the dilution from Musk’s additional shares.
To be clear, Kallo emphasizes that doubling the already lofty targets in his bull case “is nowhere near our base case estimates.” Still, he adds: “We outline this scenario to show that IF these milestones are achieved, the volumes and financial profile will almost certainly fall between these two cases.”
The markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are little changed as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is up, while oil prices (CL.1) dip and gold futures (GC00) are trading around $3,686 an ounce.
Key asset performance Last 5d 1m YTD 1y S&P 500 6631.96 0.68% 4.11% 12.76% 16.07% Nasdaq Composite 22,470.73 1.94% 6.49% 16.36% 24.74% 10-year Treasury 4.125 5.50 -13.90 -45.10 38.10 Gold 3690.8 0.27% 8.01% 39.84% 39.43% Oil 62.64 0.06% -1.77% -12.84% -12.08% Data: MarketWatch. Treasury yields change expressed in basis points
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The buzz
The Trump administration has asked the Supreme Court to let it remove Federal Reserve Gov. Lisa Cook from the central bank’s board while a lawsuit challenging the president’s effort to fire her proceeds.
San Francisco Fed President Mary Daly is due to speak at 2:30 p.m. Eastern.
The Nikkei 225 JP:NIK reversed course having hit a record after the Bank of Japan held rates, but in a split decision, and said it would start selling its $250 billion stash of exchange-traded funds.
FedEx shares (FDX) are higher after releasing earnings and giving a 2026 fiscal outlook, a move that suggested trade uncertainty is easing.
Lennar shares (LEN) are lower after the home builder missed revenue estimates.
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The chart
Source: Vanda Research
If retail investors are an important prop for the stock market then equities may struggle in the next few months. The chart from Marco Iachini at Vanda Research shows the average retail net buying of U.S. stocks for 2021-2024 and net purchases so far this year. At the moment “retail is again pushing against historical patterns, encouraged by a ‘good-is-bad’ narrative where Fed cuts are perceived as pre-emptive medicine against recession. A Q3 earnings season bump could further support activity before the year-end holiday lull,” says Iachini. But, he also says: “Looking forward, we still expect Q4’s seasonal slowdown to weigh on activity.”
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name TSLA Tesla NVDA Nvidia INTC Intel GME GameStop NIO NIO OPEN Opendoor Technologies PLTR Palantir Technologies AMD Advanced Micro Devices AAPL Apple TSM Taiwan Semiconductor Manufacturing
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-Jamie Chisholm
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09-19-25 0738ET
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