Recently, Tesla (TSLA, Financial) stock experienced a significant drop of nearly 9% following its Robotaxi event. Analysts have cited this as a critical lesson for investors: the hype surrounding Tesla often surpasses its fundamental business performance. This event highlighted the disconnect between the stock's high valuation and the actual market reality.
Garrett Nelson, an analyst from CFRA, remarked that the situation is akin to watching a blockbuster movie with a convoluted plot, leaving audiences confused in the end. During last week's sell-off, Tesla's market cap shrank by more than $60 billion, contrasting sharply with its recent upward trajectory. Since Elon Musk began AI promotions in April, Tesla's stock surged over 70%. Prior to announcing the Robotaxi launch, Tesla's market value had soared past $760 billion, more than 14 times that of General Motors and nearly 18 times that of Ford.
Currently, investors face the pressing task of reevaluating Tesla's stock price. Nelson, who has been long bullish on Tesla, warns that last Friday's drop could just be the beginning of Wall Street's reassessment. He emphasized that the gap between Tesla's high valuation and its stalled earnings growth is widening, with mid-term growth drivers remaining unclear.
Bernstein analyst Toni Sacconaghi reiterated his stance that Tesla's valuation is out of touch with its fundamentals. In a client report, he noted that the Robotaxi event lacks immediate deliverables or incremental revenue drivers. Sacconaghi estimates Tesla's car business to be worth approximately $200 billion, indicating that nearly $600 billion of its valuation rests on unproven ventures, such as full self-driving (FSD), robotaxis, and humanoid robots. He added that robotaxis are a costly venture that may take years to become profitable.
With no short-term catalysts in sight, Tesla is facing challenges. Recent quarters have seen weak demand and intensified competition from companies like General Motors, impacting sales and margins. Experts caution that this trend is unlikely to reverse soon; the company's operating margin dropped to 6.3% in Q2 from 14.6% two years ago.
Ron Jewsikow, an analyst from Guggenheim Partners, believes Tesla's fair value is around $153 per share. Following the Robotaxi event, he predicts that investors will refocus on the company's fundamentals, which he describes as "pretty poor." He expressed difficulty in recommending a company with a price-to-earnings ratio of 100 times next year's earnings and nearly no free cash flow.
Tesla's next major test will be the third-quarter earnings report, scheduled for release on October 23.
