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Tesla Stock Selloff After Robotaxi Announcement: Is the Company’s Future at Risk?

Hannah Perry | October 14, 2024

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Tesla Stock Selloff Following Robotaxi Event: A Sign of Things to Come?

Disappointment in the Details

Tesla, Inc. (TSLA) is in the spotlight after its recent robotaxi announcement left many investors disappointed and the stock price reeling. With a monumental selloff that erased over $60 billion from Tesla’s valuation, the disconnect between the vehicle manufacturer’s lofty market capitalization and its actual earnings reality has never seemed clearer.

The excitement surrounding Tesla’s foray into the robotaxi space was met with skepticism, as analysts noted a lack of concrete details regarding the rollout plan and the regulatory approvals necessary for this ambitious initiative. Garrett Nelson, an analyst at CFRA, compared the experience to “watching a movie with a lot of plot twists and special effects, and at the end, you’re walking out scratching your head.” This sentiment starkly contrasts with the response that CEO Elon Musk likely envisioned when introducing futuristic concepts like the Cybercab and Robovan.

Market Reaction and Analysts’ Concerns

Tesla’s stock had recently surged over 70% following Musk’s enthusiastic promotion of artificial intelligence developments in the company. However, the aftermath of the robotaxi event revealed significant investor concerns, causing the stock to drop 9% on Friday while extending its decline to over 17% in the past year. With its market value plummeting to approximately $760 billion, Tesla is now valued at more than 14 times General Motors’ (GM) market cap and nearly 18 times that of Ford (F).

Analysts are now re-evaluating Tesla’s stock price in light of these developments. Nelson warned that the dramatic drop could be just the beginning as Wall Street reassesses the disparity between the company’s market valuation and its proven growth potential. “There is an increasing disconnect between the stock’s lofty valuation and the reality that Tesla’s earnings growth has hit a wall,” Nelson emphasized.

Valuation versus Fundamentals

Taking a closer look at Tesla’s automotive business, Bernstein’s Toni Sacconaghi determined that it’s worth approximately $200 billion, while suggesting that nearly $600 billion of Tesla’s valuation is built on less certain ventures, including Full Self Driving (FSD), robotaxi endeavors, and humanoid robots. The absence of clear, near-term catalysts has become especially critical as external factors, such as increasing competition from other electric vehicle manufacturers like GM, continue to put pressure on Tesla’s sales and operating margins.

Tesla’s operating margins fell to just 6.3% in Q2 from 14.6% two years prior, with the company facing significant challenges in meeting market demand. Guggenheim’s Ron Jewsikow commented on the company’s fundamentals stating, “A business trading at 100 times next year’s earnings, with little to no free cash flow, is really difficult to underwrite.”

The Road Ahead

With Tesla’s shares currently on a downward trajectory, investors are left with critical concerns about the company’s ability to navigate through its upcoming third-quarter earnings call, scheduled for October 23. This will serve as a significant test for the company and will require it to demonstrate tangible results in the face of increasing skepticism from both institutional and retail investors.

The implications of the robotaxi event and subsequent fallout emphasize a renewed obsession with Tesla’s fundamentals over the previous hype that propelled its stock prices to affluence. As investors reassess their expectations and Tesla’s long-term viability, it remains to be seen whether the automaker can deliver on its ambitious future projects, or if it will have to focus on cementing its hold in the increasingly competitive electric vehicle market.

In conclusion, while Tesla continues to strive for innovation, the disconnect between its grand objectives and market realities could pose challenges. For Tesla investors, it may be time to reevaluate the stock’s true worth in light of the fundamentals rather than the hopeful narrative that has long driven its success.