An Underwhelming Robotaxi Reveal Is Leading Tesla's Lofty Market Value To A Harsh Reality

Tesla's much-anticipated launch of its autonomous driving taxi, the Robotaxi, last week seemed to have left financial market investors largely disappointed. Musk, who has always been adept at boosting Tesla's valuation by painting a picture for investors, has rarely had a misstep, and his Robotaxi vision has not been fully recognized by Wall Street and Tesla stock believers. This disappointment has led some Wall Street investment institutions to question whether the stock's high premium valuation can continue.

Looking at Tesla's recent stock price trends, Musk's long-touted Robotaxi has failed to win the favor of global capital, leading to a continuous decline in Tesla's stock price after the Robotaxi launch event, with a 7.7% drop in Tesla's stock price since the launch of the autonomous driving taxi last week. Wall Street investment firm Bernstein said that the Robotaxi tends to be a grand narrative, but for Tesla's current weak performance and expensive valuation, it seems to have no practical significance.

The so-called Robotaxi is more like a dazzling promise, but this promise, or long-term plan, is crucial for the continued rise of Tesla's stock and the maintenance of its high valuation. The Robotaxi is also an important part of Musk's vision for Tesla's future development driven by artificial intelligence and humanoid robots. Musk even made a seemingly crazy market value forecast at Tesla's shareholder meeting, predicting that with the support of fully autonomous driving technology and Optimus humanoid robots, Tesla's market value will exceed $30 trillion.

Ark Investment Management recently updated its target price for Tesla, estimating that Tesla's stock price could reach $2,600 by 2029. Ark's main logic for strongly bullish Tesla stock is that it expects nearly 90% of Tesla's market value and profits by 2029 will be attributed to the Robotaxi autonomous taxi network built on an incredibly powerful AI supercomputing system.

However, judging from the actual situation of the Robotaxi launch event, Ark's radical expectation seems to be detached from reality. Due to investors' many questions about the specific technical details of the Robotaxi autonomous driving car and the general timeframe of the Robotaxi blueprint plan, such as the advantages of the updated FSD compared to autonomous driving competitors, the regulatory progress of FSD, and when Robotaxi will hit the market, among other market concerns that have not been answered.

Therefore, Tesla's high forward price-earnings ratio of 75x seems too expensive to Wall Street traders, and it is also very expensive compared to the overall high valuation of U.S. technology giants.

Admittedly, Tesla's investors generally have high hopes for the ultimate success of the autonomous driving business and Robotaxi cars. Bernstein estimates that Tesla's core electric vehicle business may be worth less than $200 billion, indicating that its current market value reflects the total value of all other businesses (including Robotaxi and Optimus humanoid robots) at about $600 billion, and this expectation is very high. More importantly, this part of the business exists more in the virtual imagination space than in specific operating results.

Since the eye-catching Robotaxi launch event on October 10, Tesla's stock price has fallen by 7.5%, but this has hardly weakened its overpriced valuation. Tesla remains the most expensive stock among the Magnificent 7 U.S. technology giants, and even though its stock price has underperformed almost all technology giants this year, its valuation has long been higher than theirs. Tesla's valuation is higher than that of NVIDIA, the AI chip hegemon with a market value of over $3 trillion, and it is far more expensive than the low valuation in the middle range of traditional automotive manufacturing giants such as General Motors and Ford.

In addition, Tesla's valuation is much more expensive than the 26x forward price-earnings ratio of the NASDAQ 100 index. What's even more absurd is that Tesla's stock price has fallen by more than 10% this year, while the NASDAQ 100 index, which includes technology giants such as NVIDIA, Apple, and Tesla, has risen by more than 20%.

"What worries me the most about Tesla's valuation is how you grow into a 75-times price-to-earnings multiple," said Sosnick from Interactive Brokers. "The only way you can is if you have a world-changing technology, which they once did, but the current valuation requires a similarly major leap forward."

Undoubtedly, last week's grand event failed to inspire global investors' confidence that this major leap is imminent. At the same time, the slowdown in global electric vehicle demand and the intensification of competition with many Chinese competitors are constantly affecting its sales and profits.

"Tesla's robotaxi event was long on vision, and short on immediate deliverables or incremental revenue drivers," Sacconaghi from Bernstein wrote in a report.

At the Robotaxi event, the company showcased an autonomous driving two-door sedan taxi called Cybercab, a concept car, and an upgraded prototype of the Optimus humanoid robot, but lacked many key details that investors wanted to see. These include how Tesla will transition from selling advanced driver assistance functions to fully autonomous vehicles, its path and process to obtain regulatory approval, timetables, and core evidence proving that its Robotaxi is far ahead of competitors such as Alphabet Inc.'s Waymo.

There are also more serious issues. For example, the Robotaxi autonomous driving taxi may not be put into production until 2026. The media reported earlier this week that some staff may have remotely controlled some functions of Tesla's humanoid robot during the event.

Sacconaghi from Bernstein pointed out that Tesla is still far behind competitors in regulatory approval of autonomous driving technology and expressed concern that even if it becomes the first electric vehicle company to achieve fully autonomous driving that completely frees human hands, competitors may quickly follow Tesla's pace.

He wrote: "We do not believe the event provided sufficient detail to assuage our concerns and believe the same is likely true for many investors."

Bullish View: As long as Musk Is Alive, There Is No Reason to be Bearish on Tesla

It is certain that there are still some Tesla bulls or Musk fans who are willing to give Tesla a chance to continue performing, and this view is mainly based on their long-term trust in Musk himself.

"First and foremost, Tesla is a Musk company," said Nicholas Colas, co-founder of DataTrek Research. "As long as Musk is alive and generating ideas and having success in other businesses, people will say if this guy can have a rocket return to a pinpoint, of course, he can solve self-driving."

Nevertheless, after Tesla's stock price rebounded by 70% before the Robotaxi autonomous driving taxi event, Tesla's stock price still appears to be full of great challenges.

The next core catalyst to watch is the third-quarter earnings to be announced next week. Wall Street analysts generally expect the company's profits to decline by 10% year-on-year, mainly due to weak electric vehicle demand under the Fed's long-term high interest rates and intensifying competition in the electric vehicle industry.

"In the near-term, what would worry us will be any substantial weakness in car sales, which is still the bread and butter for Tesla," said Brian Mulberry, portfolio manager at Zacks Investment Management.