In a surprising revelation, Tesla's profitability is heavily reliant on the sale of vehicles, challenging its positioning as an artificial intelligence and technology company. Despite its status as the leading electric vehicle (EV) manufacturer in North America, Tesla's ancillary operations in Energy Generation and Storage, as well as Services, play a minimal role in profit generation.

Recent reports indicate that over a third of Tesla's pre-tax profit comes from unsustainable and non-innovative sources. While the worldwide EV market is expected to witness an impressive compound annual growth rate of nearly 18% through 2030, Tesla's revenue primarily depends on selling and leasing EVs, with 85% of total revenue derived from this segment.

Tesla's success as an automaker can't be denied, as it became the first company in over a half-century to organically build itself up to mass production. The Model Y, in particular, has emerged as the best-selling vehicle globally, according to the company's preliminary data. Additionally, Tesla is the only pure-play EV manufacturer generating a recurring profit based on generally accepted accounting principles (GAAP), despite other automakers' struggling EV segments.

Elon Musk, the outspoken CEO of Tesla, has been widely credited for the company's innovative capacity. Under his leadership, Tesla has introduced several mass-produced models, including the highly anticipated Cybertruck, alongside ventures into energy, storage, and various services. The impact of Musk's vision on Tesla's valuation cannot be overlooked, as the company holds a staggering market cap of $661 billion.

However, despite the impressive valuation, Tesla's ancillary segments, namely Energy Generation and Storage and Services, contribute little to its operating income and fail to make a significant impact. While Tesla's Energy Generation and Storage revenue saw a slight increase in the fourth quarter of 2023, it declined in previous quarters. Services revenue remained flat, with a meager gross margin of just 2.7%, hardly moving the needle for the company.

Tesla's challenges as a conventional automaker have become increasingly evident, with average operating margins and the need to slash prices on its models due to waning demand and rising global inventory. The company's operating margin has more than halved since September 2022, from 17.2% to 8.2%. Despite this, Tesla's forward price-to-earnings ratio remains significantly higher than the industry average.

Another concern lies in the substantial percentage of Tesla's pre-tax income that comes from unsustainable sources, such as automotive regulatory credits and interest income from its cash holdings. These sources accounted for 35% of Tesla's pre-tax income in the fourth quarter of 2023, undermining the notion of true innovation and organic growth.

Moreover, Elon Musk's track record of overpromising and underdelivering on new vehicles and innovations raises further doubts about Tesla's position as a tech company. Failed promises, including delays in the launch and production ramp of the Cybertruck, as well as unfulfilled expectations of Level 5 autonomy, cast a shadow on Tesla's credibility.

While Tesla's first-mover advantage in the EV space might warrant a premium valuation compared to traditional automakers, analysts argue that its current triple-digit share price is unsustainable. Wall Street's profit consensus for Tesla entering 2024 suggests that the company's share price should align with the auto industry's valuation, placing it between $22 and $29 per share.

In conclusion, despite Tesla's achievements and market-leading position in the North American EV market, its dependence on vehicle sales for profitability and underperformance in ancillary segments challenge the notion that it should be valued as an AI and technology company. As Tesla faces mounting headwinds in a highly competitive industry, it becomes increasingly clear that it is primarily a car company and should be valued accordingly.