Tesla could have a tough time living up to the hype around its robotaxi event
Tesla shares are ripping ahead of the electric vehicle company’s robotaxi debut, but Wall Street is growing skeptical that this event will yield something that will add to the company’s bottom line anytime soon and justify the stock’s run-up. The stock is up nearly 22% in September as investors pile in ahead of Tesla’s “We, Robot” robotaxi unveiling on Oct. 10 in Los Angeles and its third-quarter delivery report expected next week. The robotaxi will likely aim to be a self-driving vehicle that owners can authorize to be used as part of an Uber-style ride-hailing network. The recent hype lifted Tesla’s stock into positive territory for the year, and it’s now up nearly 5% in 2024. It’s a major turnaround for a name that suffered its worst day since 2020 in late July after a massive earnings miss . Shares were under pressure earlier this year as Tesla cut prices on its cars in the U.S., Europe and China . In order for Tesla to live up to the hype of “We, Robot,” Wall Street anticipates the company will unveil a prototype of its Cybercab robotaxi. Investors also expect Tesla to reveal advancements in its driver assistance features, known as Autopilot and Full Self-Driving (FSD), and artificial intelligence capabilities. Investors will also seek updates on regulatory approvals of the Tesla-supervised FSD in Europe, China and other countries. TSLA YTD mountain Tesla shares in 2024 Some analysts, including CFRA’s Garrett Nelson, are viewing Tesla’s upcoming event as more of a Hollywood-esque showcase that’s driving buzz for the EV maker, which spends far less on ad spending compared to other automakers. “I’ve been in the bull camp for a long time regarding the Tesla story. In July, after their second quarter earnings release, I moved to a hold. So I’m more of a skeptic at this point heading into this event,” Nelson told CNBC. He added that the stock’s dramatic rally as of late is typical of how it has performed ahead of major Tesla events. “The bar is now very high, and it’s gonna be tough for Tesla to surpass these very lofty expectations heading into this investor day,” Nelson said. “They’ve really hit a wall. The revenue growth has hit a wall. The earnings growth is declining. And looking out two to three years, we don’t see much improvement in EPS.” A high-risk, high-reward venture Analysts polled by LSEG have a consensus price target of $210.71 on Tesla shares, implying a decline of 19% from Friday’s close. Bernstein, UBS and Guggenheim are among the Street’s most bearish leading up to the event, with the firms struggling to justify Tesla’s current valuation and buy into Tesla’s plan for widescale robotaxi deployment. Analysts generally believe a robotaxi service is unlikely to be available anytime soon. To be sure, hype has long been part of Tesla’s story: CEO Elon Musk has been making high-flying statements about the company’s plans for years. He told shareholders in 2015 that Tesla cars would achieve “full autonomy” wtihin three years. He also said on a call with institutional investors in 2019 that Tesla would have 1 million robotaxi-ready vehicles on the road in 2020. Neither has come to fruition. Bernstein rates the EV-maker’s shares as “underperform,” with a price target of $120 — that’s a downside of nearly 54% from current levels. “We believe full level 5 autonomy will be solved over time, and that *if* Tesla is first to launch a level 5 solution with existing hardware, it would likely have a significant cost/supply advantage over competitors.” a team of Bernstein analysts led by Nikhil Devnani said in a Sept. 17 note to clients. “However, we struggle to have conviction that Tesla can leapfrog incumbents currently delivering on Level 4 today, and accordingly struggle to underwrite the company’s valuation. Tesla’s Autopilot and supervised FSD systems are currently classified as a Level 2 autonomous-driving system that are intended for use with a fully attentive driver, with Level 5 being an entirely autonomous vehicle. Level 4 capabilities means that a vehicle can perform a high level of driving automation, but a human driver can intervene if needed. UBS analyst Joseph Spak, meanwhile, has a sell rating on the stock and a $197 price target, implying a 24% slide from Friday’s close. The “We, Robot” event is an “opportunity for Tesla to not only convince that investor base that the current valuation is justified, but that there is significant upside opportunity from here,” he said in a Sept. 19 note to clients. “We believe widescale Tesla robotaxi deployment is unlikely in the coming years,” Spak added. “That is not to say Tesla isn’t making technological progress, but Tesla needs to show that the tech is ready and safe.” That includes contending with local regulations and potentially figuring out the logistics and operations of a transportation network company, he said. Unlike Tesla, Google’s self-driving Waymo car runs its robotaxi service in the “real world” as it participates in California’s Autonomous Vehicle Passenger Service pilot program , Spak pointed out. Still, the bull case around Tesla’s robotaxi ambitions highlights the company’s potential to provide cost-effective technology. For instance, Tesla’s cheaper hardware, scalable software and a large base of existing owners gives the company an advantage if CEO Elon Musk’s vision of a hybrid autonomous vehicle fleet becomes successful, according to Bernstein’s Devnani. Specifically, the company’s plans to use a short-range camera-only sensor stack would help lower the price point to between $25,000 and $30,000 per car, implying “5-6x the supply potential for the same level of CapEx if Tesla can pull it off,” he said. Devnani, added, however, that his team is “cautious on Tesla’s odds of all-out winning in self-driving technology” as it has a more limited sensor stack compared to its competitors. (Uber, Waymo and Cruise use light detection and ranging, or LiDAR, technology in its self-driving cars.) Goldman Sachs analyst Mark Delaney also expects Tesla’s cost structure on hardware to remain an advantage for the company, but he added that high-definition radar could be needed for a robotaxi in certain weather conditions. He rates the stock neutral and his price target of $230 suggests downside of more than 11%. Morgan Stanley analyst Adam Jonas is a Tesla bull with an overweight rating and a $310 price target — reflecting 19% upside. However, even he seems to have some doubts as “We, Robot” approaches. “We are, frankly, struggling to see how the day can live up to investors’ high expectations,” Jonas said. He said that details he’s looking for include data comparing the safety of Tesla’s autonomous vehicle technology to human driving. A wait-and-see tech story Tesla’s recent growth has been driven by its rapidly growing energy generation and storage segment, which hasn’t been enough to offset the slowdown in its auto business, CFRA’s Nelson noted. The company remains the top EV seller in the United States by far, but its automotive revenue in the second quarter came in at $19.9 billion, a 7% drop from a year earlier, as it’s losing market share to several other rivals releasing their own EVs. For now, Nelson’s not convinced that the upcoming vehicle launch will be the game-changer are hoping for — and he thinks its a “misnomer” to call Musk’s next vehicle a true “robotaxi” unless it displays real robotic capabilities. “Investors should take a wait-and-see approach here, but expectations are very high,” Nelson said. “Our big issue with the with the story — and Tesla is a ‘story stock,’ it’s all about the next catalyst in the story — is that Tesla’s intermediate-term growth does not have a lot of transparency.” Morgan Stanley’s Jonas has an eye on the evolving relationship between Tesla and Musk’s new artificial intelligence startup xAI. Tesla plans to build a custom supercomputer named Dojo that processes and trains AI models using video and data from Tesla cars. In turn, this would be used to improve Tesla’s driver assistance features. “Tesla upside requires AI execution,” Jonas said in a recent note. “Tesla’s future valuation is highly dependent on its ability to develop, manufacture and commercialize autonomous technologies, ranging from transportation to humanoids.”
