Tesla's Stock Surges on Robotaxi Momentum, Wiping Out Last Week’s Losses

Tesla's stock has been on a roller-coaster ride in recent days, with a notable surge driven by two key factors: the company's advancing robotaxi ambitions and a cooling of tensions between CEO Elon Musk and President Donald Trump.

Tesla closed up 5.7% at $326.09 on Tuesday, notching its third straight positive session, recouping most of its losses from the previous week, reflecting renewed investor optimism. Yet, a veteran Tesla bull has tempered the enthusiasm, downgrading the stock amid concerns over robotaxi hype and Musk’s political entanglements. This shift underscores the delicate balance of innovation and risk shaping Tesla’s market trajectory.

Robotaxi Developments: A New Frontier for Tesla

Tesla has made significant strides in its pursuit of autonomous vehicle (AV) technology.

The company was recently listed as an AV operator on Austin's Transportation and Public Works website, joining established players like Alphabet's Waymo and Amazon's Zoox. This listing comes ahead of Tesla's targeted launch of its robotaxi service, reportedly set for June 12. Adding to the momentum, a video surfaced on social media showing a Tesla robotaxi navigating the streets of Austin without a human driver. The video, which Musk reshared with praise for its "beautifully simple design," confirms the company's progress in unsupervised testing. At the same time, Musk indicated that he’s flying from Los Angeles to Austin for the kickoff. When a commenter asked when public rides will start, Musk said the current plan is for June 22, and that the first driverless trip from the Tesla factory to a customer’s house will take place on his birthday, June 28.

Tesla plans to begin its robotaxi testing with a small fleet of 10 to 20 vehicles, with the potential to scale up if the tests prove successful. However, the company will employ remote tele-operators to intervene in case of incidents or traffic complications—a safety measure that could slow the pace of expansion. Despite these challenges, Musk remains optimistic about the future of autonomous vehicles, predicting that "the streets will change very rapidly" as robotaxis become more common.

The robotaxi service is a critical component of Tesla's strategy to diversify its revenue streams beyond electric vehicle (EV) sales. With EV sales growth slowing and profits declining—Tesla reported a 71% drop in profits for the first quarter of the year—the success of the robotaxi initiative could be pivotal for the company's financial future. If successful, the service could provide a recurring revenue model, offsetting the cyclical nature of vehicle sales and positioning Tesla as a leader in the autonomous driving sector.

The Musk-Trump Dynamic: A Double-Edged Sword

The relationship between Elon Musk and Donald Trump has also played a significant role in Tesla's recent stock movement. Musk's vocal support for Trump and his involvement in political discourse have been a double-edged sword for the company. While Musk's alignment with Trump was initially seen as beneficial for Tesla's robotaxi ambitions—given Trump's pro-business stance—the recent public feud between the two sank Tesla's stock late last week.

However, tensions appear to be easing. At a White House event, Trump made conciliatory remarks about Musk, stating he would have "no problem" speaking with the Tesla CEO and revealing that he intends to keep the Tesla Model S he purchased in March. These comments helped Tesla's stock recover, as investors interpreted them as a sign of reduced political risk for the company.

The Musk-Trump dynamic underscores the "key-man risk" associated with Tesla, where the actions and public persona of its CEO can significantly impact the company's stock price. Musk's political involvement has polarized Tesla's customer base and introduced volatility into the stock, as seen in the recent fluctuations. While Musk's influence has been a driving force behind Tesla's innovation and market success, it also exposes the company to reputational risks that can affect investor sentiment.

Analyst Downgrade: Caution Amid Hype and Uncertainty

In a notable shift, long-time Tesla bull Ben Kallo of Robert W. Baird downgraded the stock from Buy to Hold, citing concerns over the hype surrounding the robotaxi event and the uncertainty introduced by Musk's political involvement.

Kallo acknowledged Tesla's long-term potential but urged caution in the short term, pointing to the company's recent addition to Austin's AV testing registry as a sign that Tesla is still in the early stages of its robotaxi deployment. By comparison, competitors like Waymo are already in the deployment phase, offering ride-hailing services in multiple cities.

Kallo also highlighted the "key-man risk" posed by Musk, whose public statements and political affiliations have increasingly influenced Tesla's stock performance. Other factors contributing to the downgrade include intensifying competition in the EV market, fluctuating delivery estimates, and potential changes to tax incentives for electric vehicles. Despite these concerns, Kallo maintained a $320 price target for Tesla, suggesting that the stock's current valuation may already reflect its near-term growth prospects.

Interestingly, Tesla's stock rose about 3% in premarket trading following the downgrade, possibly reflecting the market's relief over the cooling Musk-Trump feud. However, the downgrade serves as a reminder of the challenges Tesla faces as it navigates the transition to autonomous vehicles and manages the reputational risks associated with its high-profile CEO.

A Balancing Act for Tesla

Tesla's recent stock surge is driven by a combination of its robotaxi momentum and the easing of tensions between Elon Musk and Donald Trump. While the robotaxi service holds significant promise for Tesla's future, it is not without risks, including regulatory hurdles, technological challenges, and the need for substantial investment. Additionally, Tesla must contend with increasing competition in the EV market and the potential for further political controversies involving its CEO.

As Tesla prepares to launch its robotaxi service, investors will be closely watching for signs of progress and any updates on the company's financial performance. While the short-term outlook may be uncertain, Tesla's long-term prospects remain tied to its ability to innovate and lead in the rapidly evolving automotive and technology sectors. For now, the market's optimism is tempered by caution, as reflected in the analyst's downgrade and the ongoing scrutiny of Musk's influence on the company.