The electric vehicle (EV) pioneer’s stock is at risk of taking another big hit if Musk and his team don’t over-hype the Q3 results – or at least the earnings call data.
Last Thursday evening, pioneer of electric vehicles (EV). Tesla (TSLA 0.71%) has unveiled its long-awaited robotaxi — actually, 21 of them — called the Cybercab. The two-seater vehicle suggested a Tesla Model 3 at the front and the futuristic-looking Tesla Cybertruck at the rear. It is purpose-built as an autonomous vehicle, so it has no steering wheel or pedals.
As usual for a new Tesla product, CEO Elon Musk stirred up a lot of excitement among investors and tech enthusiasts ahead of the event. Appropriately, the event took place at The discovery of Warner Brosfilm studio in Burbank, California, and it really was impressive from a theatrical point of view.
Image source: Tesla.
Tesla’s event was light on details, resulting in a drop in Tesla shares and a rise in ride-hailing stocks.
Tesla shares fell 8.8% on Friday, a day in which all major stock indexes rose, which did not surprise me. When the event ended for the streamers, my immediate thought was “Is this it?” (Tesla’s stock rose slightly on Monday and Tuesday, but is still 8% lower at the end of Tuesday’s market than before the robotaxi event).
While investors dumped Tesla shares on Friday, they also bought shares of ride-hailing executives. Uber Technologies and Lyftwhich rises 10.8% and 9.6%, respectively. Tesla provided few details during its event about its plans to start a transportation service with self-driving Tesla vehicles, which investors naturally saw as positive news for Uber and Lyft, as these companies are well positioned to be leaders in the transport operation. services with autonomous vehicles.
Musk’s remarks lasted only about 20 minutes, at least for the streamers. There were about 3.4 million of us watching on the Tesla X feed (formerly Twitter). That said, the festivities continued longer for attendees, who were served by Optimus robots and were able to tour the vast film studio located in a Cybercab or a driverless Tesla Model Y.
Given this critical reception, it seems worth noting that I think I’m pretty objective when it comes to Tesla. Indeed, my review of its second annual Artificial Intelligence (AI) Day, held in October 2022, was moderately positive. My two main things:
Musk is well known for having many grandiose plans, some of which probably won’t make it past the development stage. That said, it seems more likely than not that Tesla will eventually sell humanoid robots [its Optimus robot] to scale.
Tesla investors must like that Musk thinks big. Being an early entrant in any massive secular trend can provide a company with a considerable early and often lasting advantage.
Tesla desperately needs its Cybercab and ride-hailing service to be successful
Tesla has recently struggled to grow EV sales, stemming from a slowdown in the overall EV market and increased competition. It has lowered prices to boost sales, which has hurt margins and earnings.
| Metric | Q1 2024 | Q2 2024 | Q3 2024 * |
|---|---|---|---|
| YOY revenue change | (9%) | 2% | — |
| Adjusted earnings per share (EPS) change YOY | (47%) | (43%) | — |
| Vehicle shipments change YOY | (9%) | (5%) | 6%** |
| Gross margin of auto segment | 18.5%, from 21.1% in the period last year | 18.5%, from 19.2% in the period of the year | — |
Data source: Tesla’s earnings reports. YOY = year to year. *Q3 financial results are scheduled to be released on October 23. ** Wall Street was looking for shipment growth of about 8% YOY, so the company fell a bit short of that expectation.
While the company’s energy and “existing services and other” segments have done well, they likely aren’t enough to fuel Tesla’s stock higher in the long term. So the company needs its Cybercab and ride-hailing service to be successful – and it needs to launch this vehicle as soon as possible.
On that note, Musk said during the event that he expects Tesla to begin production of the Cybercab “before 2027.” That timeline seems overly optimistic, as is his expectation that the vehicle will cost “under $30,000.” Musk also shared that he anticipates Tesla will begin operating fully autonomous vehicles — Model 3s and Ys — in California and Texas next year. Of course, this timeline will depend on regulatory approvals.
Tesla is behind in the robotaxi space right now, but that doesn’t mean it won’t eventually catch up or even eclipse the leaders, including AlphabetGoogle, whose business Waymo should be considered the leader in the United States.
Investors in Tesla stock will likely now be more demanding on October 23rd
Tesla is scheduled to announce its third quarter results after the market closes on Wednesday, October 23. After the disappointing robotaxi event, investors will probably be more demanding of the Q3 results of Tesla and the data that Musk shares on the earnings call.
Tesla shares trade at 72 times forward earnings, a very high valuation for a company that Wall Street expects to grow earnings over the next five years at an average of 12% to 15% annually, according to the source. Other valuation metrics also suggest a significantly overvalued stock. The stock’s high valuation reflects that many investors expect Tesla to beat Wall Street’s earnings estimates, at least in the long term.
Tesla shares seem at risk of taking another big hit if Musk and his team do not overdeliver – at least on what data is shared on the earnings call – next Wednesday. Here are Wall Street’s Q3 expectations for the top and bottom lines:
- Revenue of $25.33 billion, or growth of 8.5% year over year
- Adjusted earnings per share (EPS) of $0.58, or a decrease of 12.1% year over year
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Alphabet, Tesla, Uber Technologies and Warner Bros. Discovery. The Motley Fool has a disclosure policy.