TLDR:
- Tesla stock has rebounded 72% since April despite weakening profits and slowing sales
- Robotaxi event on Thursday could highlight a potential $153 billion revenue opportunity
- Analysts are divided on Tesla’s autonomous driving progress and near-term outlook
- Q3 deliveries grew only 3% YoY while competitors like GM saw 60% EV delivery growth
- Tesla may need to pivot to software and self-driving tech to justify its premium valuation
Tesla is set to unveil its highly anticipated robotaxi prototype this Thursday in what CEO Elon Musk has called the company’s biggest event since the Model 3 launch in 2014.
The reveal comes at a critical juncture for the electric vehicle maker as it faces slowing sales growth and increasing competition in the EV market.
Tesla’s stock has rallied 72% since late April despite weakening profits and decelerating delivery growth. The company reported Q3 deliveries grew just 3% year-over-year to 439,975 units, a marked slowdown from previous years. In comparison, General Motors saw its US EV deliveries surge 60% to 32,095 in the same period.
The robotaxi event, dubbed “We, Robot,” is viewed by many analysts as pivotal for Tesla’s future. RBC Capital Markets analyst Tom Narayan raised his price target on Tesla stock to $236, citing the robotaxi business as potentially representing $153 billion in revenue for the company.
Narayan estimates the global robotaxi market could generate $1.7 trillion in revenue by 2040.
However, not all analysts share this optimistic outlook. CFRA analyst Garrett Nelson cautioned that earlier predictions about the robotaxi market have proven overly optimistic. Nelson argues that a truly driverless taxi is still “several years away” and that Tesla remains far from achieving the necessary level of autonomy.
The event comes as Tesla faces mounting challenges in its core automotive business. Slumping EV prices, intensifying competition in key Asian markets, and a pullback in consumer demand have combined to narrow Tesla’s profit margins. In Q2, the company’s operating margins fell to 6.3% from 9.6% a year earlier.
Tesla’s premium valuation – with a forward price-to-earnings ratio of 85 compared to the S&P 500’s 24 – is increasingly difficult to justify based solely on its automotive business. Traditional automakers like Ford and General Motors trade at much lower multiples of 5.3 and 4.7 respectively.
To maintain its lofty valuation, many analysts believe Tesla will need to successfully pivot to become more of a technology and software company, with self-driving capabilities at the forefront. The robotaxi reveal is seen as a key step in this direction.
Tesla is also expected to showcase a new compact EV at the event, reportedly priced around $25,000 and slated for launch in 2025. While this could boost sales volumes, it may further pressure margins as the company competes in the mass-market segment.
The company faces stiff competition in the race to develop autonomous driving technology. Rivals like Alphabet’s Waymo and General Motors’ Cruise are also investing heavily in self-driving capabilities. Tesla will need to demonstrate clear technological advantages to maintain its lead in this space.
Investors and industry watchers will be closely monitoring Thursday’s event for concrete details on Tesla’s autonomous driving progress and robotaxi plans. The reveal could provide crucial insights into whether Tesla can successfully transition from a traditional automaker to a software-driven transportation company.
Tesla is scheduled to report its Q3 earnings on October 16. Analysts expect earnings per share of 60 cents, down 9% from the year-ago period, on revenue of $25.57 billion.
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