Fundamentals over hype.
Indeed, that’s the lesson for investors in Tesla (TSLA) after the EV maker’s disappointing robotaxis event exposed the disconnect between its stock’s lofty valuation and reality.
A lack of details about rollout plans or regulatory approvals, and no mention of more affordable regular EVs, left Wall Street hoping for more.
CFRA analyst Garrett Nelson likened the incident to “watching a movie with lots of plot twists and special effects, and by the end you walk away scratching your head.”
It’s safe to say that analysts scratching their heads was probably not the reaction Musk was hoping for when he unveiled the CyberCab and Robovan concepts. A big issue for investors right now is the revaluation of Tesla’s stock price.
Tesla’s stock decline on Friday wiped out more than $60 billion in valuation, a sharp reversal from the stock’s recent momentum. The stock has soared more than 70% since Musk started touting AI in April. The rally brings Tesla’s market cap to more than $760 billion ahead of the robotaxi announcement, more than 14 times the market cap of General Motors (GM) and nearly 18 times the market cap of Ford (F). .
Nelson, who has long been bullish on Tesla, warned that Friday’s decline “could be just the beginning” of a reassessment on Wall Street.
“There is a growing disconnect between the stock’s high valuation and the reality that Tesla’s earnings growth is hitting a wall,” he told me, adding that medium-term growth drivers are “uncertain.” He pointed out that there is.
In a note to clients, Bernstein’s Toni Sacconaghi reiterated his belief that Tesla’s valuation is disconnected from its fundamentals, saying the robotaxi event “lacks immediate results and revenue drivers. “I’m doing it,” he wrote.
Sacconaghi estimates that Tesla’s car business is worth about $200 billion, with nearly $600 billion of that valuation coming from less proven businesses such as fully self-driving cars (FSD), robotaxis and humanoid robots. It suggests that business is at stake.
As my colleague Akiko Fujita has written, robotaxis are an expensive business and may take years to reap a profit.
The lack of a short-term catalyst comes at an already difficult time for Tesla. Weak demand and increased EV competition from GM and others have weighed on sales and profit margins in recent quarters, and experts warn that trend is unlikely to change soon.
The company’s operating margin was 6.3% in the second quarter, compared to 14.6% just two years ago.
Guggenheim’s Ron Jusicault, who sees fair value at around $153 per share, told me that investors will “refocus on the fundamentals of the business” after the robotaxi event. He characterized it as “pretty poor.”
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He added: “It’s very difficult to take on a company that has very little free cash flow and is trading at 100 times next year’s earnings.”
It’s safe to say Tesla has a lot to prove when it comes to fundamentals, as the company’s stock fell 9% on Friday and has fallen more than 17% in the past year. The next big test will be the third quarter results, which will be released after the bell on October 23rd.
Will it be more hype than fundamentals? Buckle up!
Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Have a tip about a deal, merger, activist situation, or more? Email seanasmith@yahooinc.com.
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