Fundamentals of Oversight.
That’s the lesson for Tesla ( TSLA ) investors after the EV maker’s disappointing robotaxi incident last week exposed the disconnect between the stock’s lofty valuation and reality.
The lack of details surrounding a launch plan and regulatory approval, and no mention of a low-cost conventional EV, leaves Wall Street wanting more.
CFRA analyst Garrett Nelson compared the phenomenon to “watching a movie with so many plot twists and special effects that, at the end, you leave scratching your head.”
It’s safe to say analysts are “scratching their heads,” not the reaction Musk was hoping for when the CyberCap and RoboVan concepts showed up. Now, the bigger issue for investors is re-evaluating Tesla’s stock price.
On Friday, more than $60 billion was wiped from Tesla’s valuation in a selloff, a sharp reversal from the stock’s recent run. Shares are up more than 70% since Musk started talking about AI in April. The rally brought Tesla’s market cap to $760 billion ahead of the Robotaxis announcement — 14 times GM’s ( GM ) market cap and 18 times Ford’s ( F ).
Nelson, a longtime bull on Tesla, warned that Friday’s drop “could be” as Wall Street reassessed.
“There’s a growing disconnect between the high valuation of the stock and the fact that Tesla’s revenue growth has hit a wall,” he tells me, noting that medium-term growth drivers are “not clear.”
In a note to clients, Bernstein’s Tony Chacconaghy reiterated his belief that Tesla’s valuation is disconnected from fundamentals, writing off the robotaxis phenomenon as “immediate deliverables or incremental revenue drivers.”
Sacconaghi estimates that Tesla’s automotive business is worth about $200 billion, with nearly $600 billion of that valuation resting on its less proven ventures, including fully self-driving (FSD), robotaxis and humanoid robots.
As my colleague Akiko Fujita has written , robotaxis is an expensive venture and will likely take years to become profitable.
The lack of near-term catalysts comes at an already challenging time for Tesla. Sluggish demand and increased EV competition from the likes of GM have squeezed sales and margins in recent quarters, a trend they warn is unlikely to change anytime soon.
In Q2, the company reported operating margins of 6.3%, down from 14.6% two years ago.
Guggenheim’s Ron Zvcikov, who sees a fair value of $153 per share, told me he characterized it as “very pessimistic” that investors will “return to focusing on the fundamentals of the business” after the Robotaxi event.
“Trading at 100 times next year’s earnings, without free cash flow, is very difficult to underwrite,” he added.
Shares of Tesla recovered somewhat in premarket trading on Monday, up about 2%. But with its shares down 9% on Friday and down more than 17% in the past year, it’s safe to say Tesla has a lot to prove when it comes to fundamentals. Its next big test is its third-quarter earnings, which are scheduled after October 23.
Will it be more hype than basics? Hook!
Sean Smith He is a presenter at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, links, fan situations or something else? Email [email protected].
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