Have we reached peak Tesla?

Tesla ranks No. 50 on the 2023 Fortune 500 list. The company brought in $81.5 billion in revenues last year.

Every four seconds, in the middle of a factory floor in eastern Germany, a deafening thump-thump blasts out as a mold slams down on a sheet of steel. The percussion is just one small part—albeit one of the loudest—of the frenzied action inside the facility, as workers stoke raging smelting furnaces, and robots topped by "Godzilla" heads hoist auto bodies up onto assembly lines.

Germany is home to dozens of plants like these, but this is no ordinary car factory. After each thump-thump, two automated claws reach around the mold and retrieve an item that a certain kind of superfan can identify on sight: the dramatically curving tailgate of a Tesla Model Y.

We’re inside Tesla's Giga Berlin, set amid woodlands about 24 miles from the German capital—and a crucial component of Elon Musk's multibillion-dollar effort to keep the company at the forefront of the electric-vehicle revolution.

André Thierig, director of manufacturing at Giga Berlin, is guiding me through the halls one warm Tuesday morning in May—the first visit by a non-German reporter, according to Thierig, since Musk inaugurated the factory in March 2022. Today, about 5,000 Model Y SUVs roll off the assembly line every week, and that's just the start, Thierig says. "We are still ramping up production with the three shifts we have," he says. "To get to full capacity in the future, we will add more shifts." Tesla also hopes to add more space—enough to double Giga Berlin's output to as many as 1 million cars a year.

Expanding production at breakneck speed has come to define the rambunctious and polarizing style of the self-styled Technoking of Tesla (not to mention of Twitter, SpaceX, and Neuralink). In July, it will be 20 years since Tesla's founders launched the company. (Musk became its biggest shareholder a year later, and chairman and CEO in 2008.) Two decades on, Tesla is still the world's biggest pure-electric carmaker. Indeed, it has come to define the EV industry, and Americans might struggle to name any of its competitors.

Musk, meanwhile, has become famous for making outrageous predictions about Tesla's future, falling far short of them—and still delivering results that qualify as breathtaking. There are few better ways to measure Tesla's rise than the Fortune 500, which ranks the biggest American companies by yearly revenue. The company debuted on the list in 2017, at No. 383, with $7 billion in sales. Since then, it has leapfrogged century-old brand names at a pace rarely seen since the list began in 1955. It's now ranked No. 50, with almost 12 times as much revenue as it had six years ago.

Last year, Tesla sold 1.3 million battery-powered vehicles globally, 40% more than in 2021; in the U.S. alone, its sales rose 58%. Its newest factories, in Austin and at Giga Berlin, are each set to produce about 250,000 Model Ys this year. In March, Musk announced plans to build a sixth Tesla gigafactory, in Monterrey, Mexico. The CEO, with typical hyperbole, speaks as though little can stop that blazing growth. "There could be, like, obviously a macro shock that is so severe that people stop buying cars," Musk told investors in April. "But in the absence of that, we’ll continue to grow output at a rapid clip." He estimates the company will deliver about 2 million cars this year—roughly 50% more than it did in 2022.

And yet, despite the turbocharged numbers, there are signs that Tesla's meteoric ascent is leveling off. In April, the automaker posted its lowest gross margin since 2021, missing market forecasts. Tesla stock, the best-performing among Fortune 500 companies over the past 10 years, has become something of a falling knife; by May, it traded at 60% below its 2021 highs. This spring, Tesla shocked the automotive world by slashing its prices. In May, at its annual shareholder meeting in Austin, Musk said off-the-cuff that the company might "try a little advertising," for the first time, "and see how it goes."

These pivots and stumbles are raising a question that has been unthinkable to many since the company unveiled its first electric Roadster, in 2008: Have we reached peak Tesla?

It's no secret what underlies the uncertainty. After years of dominating the EV universe, Tesla finds itself in a crowded field. Prodded by consumer demand and regulators’ net-zero targets, dozens of automakers have joined the party. In contrast to Tesla's early days, drivers now have scores of EV models from which to choose—both from startups like Rivian and Lucid, and from titans like Ford, General Motors, and Volkswagen, which are belatedly scrambling to electrify their fleets. Tesla still sells only four models, and in a field full of new contenders, some car buyers see the S, 3, X, and Y as more stale than sexy.

With producers proliferating, Tesla's market share has slid from 30.4% of worldwide EV sales in the first quarter of 2020 to 16.5% in the first quarter of this year, according to CleanTechnica. In China, where 59% of all EVs were sold last year, eight of the 10 top-selling brands were Chinese, and this year, BYD finally bumped Tesla from its top spot.

Competition isn't Tesla's only threat. In the face of inflation and recession, people are keeping their old cars longer than before, delaying buying new ones (electric or otherwise) as prices shoot up along with interest rates. EVs are also losing some of their "green" halo. Consumers are increasingly aware that EV production can wreak environmental damage, too, since mining lithium—a key component of EV batteries—requires large quantities of water. The University of California, Davis, estimates that if Americans all switch to EVs by 2050, the U.S. alone will need triple the lithium annually than is currently mined worldwide.

There's also the political tightrope. Tesla makes most of its cars in China, and sold nearly 440,000 cars there last year; it could face hostility if U.S.-China tensions boil over. "We’re heading to a more complex geopolitical world," says Felipe Munoz of JATO Dynamics, a U.K.-based global automotive analysis firm. "Tesla is an American company, and that could play against it." Another potential impediment: Musk himself, whose outsize personality has dominated the news ever since his chaotic takeover of Twitter last year. "The investor community largely sees us adrift," one shareholder told Musk bluntly at the Austin meeting. "They see [Tesla as] a company that's synonymous with its CEO, and then the discussion turns to everything but where it should be focused." (Not coincidentally, Tesla shares got a short-term bump in early May when Musk announced he was relinquishing the Twitter CEO post.)

Wrestling with all those factors, Musk's strategy seems clear: bring prices down sharply in order to sell as many Teslas as possible, even at the expense of profits, and lock in market share. Tesla can deploy its $22 billion in cash reserves to subsidize that push, while investing heavily in the technologies crucial for the auto industry's next era: self-driving vehicles. That, in Musk's mind, will give Tesla an almost unique edge among automakers. "We’re the only ones making cars that technically we could sell for zero profit for now, and then yield actually tremendous economics in the future through autonomy," Musk told investors in April. "No one else can do that."

$22 billion

The boast is classic Musk: Brimming with confidence and flush with resources, he is convinced he has a sharper eye on what's ahead than other CEOs. If it pays off, his strategy could sustain Tesla's relevance in the EV market for decades—while potentially developing a revenue stream that transcends car sales.

It's an enticing proposition, if an uncertain one. "Elon Musk has been saying he's going to sell 20 million cars a year by 2030. I don't buy that," says Munoz. (For comparison: Toyota, the world's biggest carmaker, sold about 10 million cars in 2022.) Autonomous driving, on the other hand, "is going to be the next revolution," Munoz continues. "The fact that he's already thinking of this while the rest of the companies are still planning or working on EVs is a big thing."

Others are likely to catch up in this revolution too. But Tesla execs sound unconcerned, insisting that mounting competition is good for the company and the planet. "We did not want to dominate the market" for EVs, Giga Berlin's Thierig tells me at the factory. "We were just starting it. The idea was always to accelerate the world's transition. And that needs a lot of players."

The last time I took the Tesla Strasse exit off the Berlin highway, in late 2021, Giga Berlin was still under construction, its doors not yet opened. Construction crews are still at work, but now it's for the expansion of the factory, which has so far cost more than $5 billion. Giga Berlin, which produces only Model Ys, has hired nearly 11,000 people; parking was hard to find in its vast lot.

Today, the factory looms over Grünheide, a sleepy village of about 10,000 an hour's drive east of Berlin, in what was once Communist East Germany. Giga Berlin has drastically transformed the town, along with the economic prospects of the surrounding state of Brandenburg, where about 2.5 million people live. In the process, Giga Berlin, which took less than two years to build, has become a counterpoint to Germany's famous giants like Volkswagen and BMW, which have been slow to convert their vast infrastructure to EV production.

But Tesla's arrival has been as divisive as the Technoking himself. In a poll of car lovers by Germany's Der Spiegel magazine last December, 47% of those surveyed said Musk's behavior had "a clearly negative" impact on their opinion of Tesla.

"For 50% he's the messiah; for 50% he's the devil," Brandenburg's Economy Minister Jörg Steinbach tells me. An engineer by training, Steinbach helped woo Tesla to Brandenburg and bonded with Musk over the minutiae of manufacturing. He shows me the dancing Minions GIF he texted Musk days earlier, to celebrate little X Æ A-12 Musk's third birthday.

Depending on who you ask, Musk's decision to erect Europe's only Tesla plant in this quiet region has felled forests and killed wildlife, trampled workers’ rights, and imposed hard-charging American management style on the community; or, alternatively, it has been crucial to reversing decades of economic decline.

The figures seem to bear out the second version—granted, at the cost of trees, lizards, and snakes. Housing is tight, and the population is rising. Brandenburg now has the fastest-growing GDP of any German state, at about 3.3% a year, nearly double the country's national average.

"That's the Tesla effect, no question," Steinbach says. "It is a game changer." He says Giga Berlin has led related companies to open facilities nearby, including Houston-based battery producer Microvast and Germany's BASF—both of which serve the EV market. Steinbach's office is reviewing 28 more applications for new factories. On the other hand, Musk in February said Tesla was scaling back plans for a large battery plant at Giga Berlin, because President Biden's Inflation Reduction Act offers billions in subsidies to build the components in the U.S.

But Tesla's plans to expand Giga Berlin into a sprawling EV complex are sparking concerns among some. That's clear in the hamlet of Fangschleuse, a few miles from the factory, where Tesla workers commute by train to and from Berlin. Between the railway tracks, a station house built in 1900 has been converted into a recruiting outpost for powerful trade union IG Metall, which commands a presence in every German auto factory—except Tesla's.

The company's U.S. factories, which are also nonunion, have been dogged by labor disputes, and IG Metall says Giga Berlin could face similar issues. From inside the union outpost, windows offer a bird's-eye view of Tesla workers coming and going. The union claims that Tesla frequently lays off workers before their six-month trial period is over, and that wages are about 20% lower than at other big German carmakers. (In a statement, Giga Berlin tells Fortune, "We are constantly monitoring the overall economic situation and are making sure our wages are matching industry standards.")

Mathias Papendieck, a politician from eastern Germany, believes Tesla would benefit from allowing workers to participate in running Giga Berlin, as happens at other German factories. "We learned from Tesla how to build a factory in a very short time," he says. "Tesla still has to learn from us." Still, he adds that the modest pay is outweighed by immense advantages. "We’re talking about thousands of jobs," he says.

Those jobs have been life-changing for some. One worker at the station, on his way to begin a Tesla shift, tells me that he's a mechanical engineer from Damascus who fled war-torn Syria in 2015. Although his assembly-line job is far below his skill level, that's not unusual for Giga Berlin. "I have met doctors, surgeons, in the factory," he says, adding that he sent "about 5,000 job applications" before landing a job with Tesla.

An hour into Tesla's shareholder meeting in May, Musk teed up a video, crowing that engineers had stayed up all night creating it. In it, Tesla's new Optimus robot, a humanoid chunk of metal resembling The Wizard of Oz's Tin Man, picked up small objects and performed relatively complex tasks, packing small tools and tapping its fingers to a musical beat.

"Everything you see is a Tesla-designed system," Musk told the crowd. It was also, he went on, a glimpse of Tesla's future—one in which EVs might play a much smaller part.

Musk is gradually committing Tesla to developing technologies that involve mammoth investments in A.I. systems, robotics, and energy storage. He envisions a near- or mid-term scenario in which the company occupies a very different role. Tesla's Master Plan Part 3, published in April, describes the company this way: "We make products that displace fossil fuels." Next to that statement is a photo not of a car, but of a field of Megapack battery units.

Tesla's energy-storage business sometimes goes unnoticed, given the intense scrutiny of its EV sales. But Megapack production is "growing ridiculously fast," Musk said in Austin. The company earned $3.9 billion last year from energy storage—4.8% of overall revenue. Megapacks are designed to store energy from renewable sources like wind and solar, and utility companies are the main customers.

Each Megapack unit holds up to 3.9 megawatt-hours, enough to power 3,600 homes. And despite retailing for a whopping $1.87 million, Megapack in April reported a two-year wait for delivery. The company is ramping up production in Lathrop, Calif., with a new factory planned in Shanghai. "We have very strong demand, and we’re going to make a lot of them," Musk said. "The demand is quasi-infinite."

But Tesla's bigger opportunity, in Musk's vision, is in full self-driving vehicles, or FSD, and that technology is shaping much of Tesla's innovation. One sign of the transition is Dojo, the A.I. supercomputer Tesla has built from scratch at a cost of billions. The system is training itself on vast amounts of video data, uploaded from cameras embedded in the nearly 2 million Tesla cars currently in use. Each records countless everyday driving situations that autonomous vehicles will need to learn before being let loose in large numbers on public roads. Last October, Dojo was "so powerful it tripped the power grid in Palo Alto," according to EV news site Electrek.

Eventually, Tesla's A.I. systems, powered by Dojo, will allow it to update the software in millions of cars, turning regular EVs into self-driving vehicles. Musk doesn't say what that will cost drivers, but he told shareholders in May that for Tesla, "I think it will be the single biggest asset value increase in history." He has also suggested that Tesla might someday license its self-driving A.I. technology to other companies, a business that could generate some $10 billion a year in revenues.

"I’d look at Dojo as kind of a long-shot bet," Musk told investors in April. "But if it's a long-shot bet that pays off, it will pay off in a very, very big way…in the multi-hundred-billion-dollar level," he said. "It's a bet worth taking."

Just how big can the payoff be? Musk foresees a future—perhaps soon—when much of Tesla's revenues will have nothing to do with cars at all.

That's where the robots come in. "As full self-driving gets closer and closer to generative A.I., that same software is transferable to humanoid robots," he told the Austin crowd after screening his Optimus video. "What we’re developing for full self-driving can be transferred to just about anything."

In Musk's mind, the demand for robots will be enormous. "It's some crazy number," he said in Austin. "It might be 20 billion units. A number vastly in excess of cars." Musk has said each robot will eventually retail for under $20,000. So if you do the math…

Actually if you do the math you end up in a familiar place: doubting whether Musk can possibly deliver anything like his dream scenarios. And in the race for self-driving technology—with or without robots—he faces plenty of reason for doubt.

"I’d look at Dojo as kind of a long-shot bet. But if it's a long-shot bet that pays off, it will pay off in a very, very big way… in the multi-hundred-billion-dollar level."

For starters, unlike in EVs, where Tesla enjoyed a big head start over its rivals, the company faces dozens, if not hundreds, of others that are also racing to develop A.I. systems for autonomous vehicles. They include giants like Google and General Motors, as well as numerous well-funded startups. While Tesla's database of video from its own cars is a valuable resource, it may not confer a decisive edge over rivals, at least not for long.

Other automakers question how realistic the entire notion of driverless vehicles is, especially given the safety concerns that it raises. Tesla's biggest current EV rival, China's BYD, is among the skeptics (though its view might be colored by China's tight limits on A.I. tech for automakers). "Self-driving tech that's fully separated from humans is very, very far away, and basically impossible," a BYD spokesperson said in April.

Under the best of circumstances, it could take years for cities to be mapped for autonomous vehicles, and for governments to agree on driving codes. "In my opinion, we’re still very far away from this reality," says Munoz of JATO Dynamics.

Musk is determined for Tesla to be ready, if (or, as he says, when) that reality arrives. Anticipating the steep increase in battery power that widespread FSD adoption will require, Tesla has already locked in years of supplies of crucial minerals; with cobalt from mining giant Glencore and nickel from Brazil's Vale, it is opening its own lithium refinery in Corpus Christi, Texas, later this year. Even without a self-driving breakthrough, a stronger supply chain is crucial: Right now, Tesla and every other EV carmaker must buy huge quantities of batteries from China, which dominates global battery production.

Large-scale manufacturing—of cars, robots, battery units, and now lithium—is, as Musk said in May, "excruciating—mega pain." But Tesla has weathered such pain already in building its gigafactories, and Musk is convinced that further suffering will pay off big. Tesla will no longer command the 50%-plus market share it has grown used to in EVs. And autonomous driving could face major hurdles. But in the meantime, the company can continue selling its well-respected cars into a market with steadily rising demand. EVs accounted for 14% of global auto sales last year, up from 9% in 2020. And on Wall Street, the analyst consensus is that Tesla will grow revenue by another 22% this year and 29% in 2024.

If only a few of Musk's moonshots take off, Tesla should remain a powerhouse for some time to come. Musk, at 51, believes he's already glimpsed a future where EVs are not only ordinary, but indispensable. "Assuming civilization is still around in 20 years, we’ll look back on internal-combustion engine vehicles the way we look back on the steam engine," he told investors in April. "They’re kind of quirky cool collectors’ items. That's how gasoline cars will be." And not one of them will be a Tesla. 

For most of its history, Tesla had the U.S. EV market almost all to itself. But with legacy automakers going electric, Elon Musk's juggernaut now faces unprecedented competition. Here are three models that industry watchers think could knock the models S, 3, X, and Y off the sales podium.

Fans have placed reservations years in advance for the all-electric version of the bestselling U.S. truck. Despite production problems that slowed its rollout, Ford is aiming to ship 150,000 Lightnings by the end of 2023. The truck bears a very un–Model T–like price tag (the base model comes in at just over $61,000), and its range of 230 miles on a charge declines sharply when you’re towing a heavy load. But light commercial users and weekend warriors rave about its payload and horsepower.

With its base price of about $43,000, the Ioniq 5 stands out as a high-performing but affordable electric SUV. It offers more rear passenger space than most comparably priced competitors. And while it doesn't have the powerful torque and acceleration of some EVs, it boasts a longer range (303 miles) and ultrafast charging speeds usually associated with more expensive models (including Tesla's). The Ioniq earns style points too: Its funky folds and edges make it one of the few cars on the block that doesn't look like a shiny lima bean.

It will debut in Europe this fall and won't reach the U.S. until the second half of 2024, but the ID.7 has already been flagged by auto analysts as a substantial challenger to Tesla's Model 3 and Model S in the premium-sedan market. Unlike earlier VW EVs, the ID.7 includes higher-end interior details like a 15-inch entertainment console, an augmented-reality display system, and a panoramic sunroof. VW says the ID.7 will deliver a range of up to 700 kilometers (382 miles), and the company hopes to set base prices at well under $60,000.

This article appears in the June/July 2023 issue of Fortune.