Tesla's Robotaxi Unveiling Falls Short, Raising Questions About AI Promises and Valuation

Tesla Stock Falls After Lackluster Robotaxi Event: Time to Buy the Dip? | The Motley Fool

The company has a lot of promises around AI and robotics. It is unclear whether they will be fulfilled. Tesla (TSLA -0.09%) hosted an event called "We, Robot" last week to display its prototype-autonomous vehicles and humanoid robots. Investors were disappointed. Tesla shares are now down 10% in the last five trading days (as of this writing) as Wall Street gets increasingly skeptical on how material the "Cybercab" and Tesla Optimus Bots will be to the company's bottom line anytime soon. As usual, this event came with a lot of fanfare, drama, and promises from Tesla CEO Elon Musk. Will the company make good on what he said? And should you buy the dip on the stock? Time to analyze the potential of these new products and whether they can add trillions of dollars to Tesla's market cap as Musk has prophesized. Tesla has been working on self-driving vehicle technology for more than a decade. Musk has promised numerous times that the company was on the verge of bringing full self-driving software to Tesla vehicles, usually within a few years. Most famously -- or perhaps infamously -- he said in 2019 that there would be 1 million "robotaxis" on the road by the end of 2020. This didn't happen. Last week had a similar feel. Musk came to the event in what Tesla is calling a Cybercab, a futuristic-looking taxi with doors that open vertically. They also debuted a prototype for a self-driving van in the same style. According to the company, the Cybercab will go into production in 2026, but it gave no timeline for the van. Tesla wants to build these vehicles and the associated self-driving software to attack Uber's business, allowing owners and/or Tesla itself to use this fleet of vehicles to operate a ride-sharing network with zero human drivers. If successful, it has the potential to radically lower the cost of taxi rides. On top of the robotic vehicles, Tesla made a big push to highlight its research into the Tesla Optimus Bot, which is a robot that looks like a human. Tesla claims the robot will be able to do any task you ask it to. In typical Musk fashion, he was optimistic about how much value it could bring to Tesla, projecting upwards of $25 trillion in value added to its market cap just from the Optimus product line. It is unclear what analysis led him to come to this conclusion. There are a lot of numbers thrown around by Tesla when it comes to robotics: Millions of robotaxis; trillions of dollars in market value. There is also a lot of bark coming from the company. However, there is not much bite in the form of real products getting sold to customers today. If I was a Tesla investor, I would be worried that this is just another event with announcements for products that eventually get delayed. Tesla seems to be betting its future on artificial intelligence (AI), robotics, and autonomous vehicles. But so far it's only built prototypes. Its current full self-driving software is a bit of a misnomer in that it still needs humans operating the vehicle. Unlike Waymo, which has licenses to operate a fleet of actual robotaxis in cities across the United States, Tesla's self-driving network is nothing more than an idea right now. There should also be concerns about the Optimus Bot prototype. It has come out in the days following the event that the bots were being remote-controlled by humans when interacting with guests. This is not exactly close to the autonomous robot that Musk has promised; it's also misleading investors and the company's biggest customers. Tesla stock has done phenomenal over the long term. It is also down 47% from all-time highs set in late 2021. Given all the hype around these AI and robotics products -- not to mention the huge electric vehicle (EV) and battery-storage divisions -- you might think it is smart to buy the dip on Tesla stock after its recent fall. I think this is misguided thinking based on promises yet to be fulfilled. Given the information about the robotaxis and Optimus Bot at the event, it is highly likely that these products will not be meaningful to Tesla's business for at least the next five years, if ever. This leaves investors with the current EV and battery-storage business. There shouldn't be much optimism around these segments, either. Due to huge supply increases for EVs and profit-margin compression, Tesla's operating income and free cash flow have plummeted in recent quarters. Over the last 12 months, it has generated just $1.7 billion in free cash flow. That is a measly figure compared to its market cap of $686 billion. Tesla stock looked overvalued before this "We, Robot" event. With no new products coming until at least a few years and unproven technology, it is still overvalued after the event as well.

Robotaxi Flop Leaves Tesla's Lofty Stock Multiple Looking Shaky

(Bloomberg) -- Tesla Inc.'s reveal of its much-hyped self-driving car last week left investors underwhelmed and sent shares plunging. The disappointment also left the Street questioning the shares' premium valuation. The so-called robotaxi is a dazzling promise that has been crucial to keeping Tesla's stock at lofty heights. It's also a key part of Elon Musk's vision for the artificial-intelligence driven future of his company. But with numerous questions remaining about technical details of the vehicles and when they will be available, the shares -- trading at 75 times forward earnings -- are looking expensive to some. "This is still a carrot on a string," said Steve Sosnick, chief strategist at Interactive Brokers. "How many new investors will be willing to buy this expensive stock when the core auto business is slow and the company did not show how it will bring the rapid growth in the future?" Tesla investors have a lot riding on the success of autonomous vehicles. Bernstein analyst Toni Sacconaghi estimates that Tesla's core electric-vehicle business is likely worth less than $200 billion, suggesting its market capitalization reflects a value of about $600 billion for other endeavors, such as the robotaxi and the Optimus humanoid robot. The shares are down 7.5% since the splashy October 10 event, but that's barely dented the premium. Tesla is by far the most expensive stock in the Magnificent 7, and dwarfs the mid-single-digit multiples of traditional carmakers like General Motors Co. and Ford Motor Co. It's also much pricier than the Nasdaq 100's multiple of 26 times forward earnings. "What worries me the most about Tesla's valuation is how do you grow into a 75-times price-to-earnings multiple," said Interactive Brokers' Sosnick. "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." Last week's glitzy event failed to inspire confidence that such a major leap is coming anytime soon. In the meantime, slowing demand for electric vehicles around the world and rising competition are hitting its sales and profits. "Tesla's robotaxi event was long on vision, and short on immediate deliverables or incremental revenue drivers," Bernstein's Sacconaghi wrote in a note. The company showed prototypes of a two-door sedan called the Cybercab, a concept van and an updated version of Optimus, but lacked key details that investors had wanted to see. Those included how Tesla will move from selling advanced driver-assistance features to fully autonomous vehicles, its path to regulatory approval, and evidence that it is comfortably ahead of rivals like Alphabet Inc.'s Waymo. There were other kinks, too. The robotaxi will "probably" go into production only in 2026. And Bloomberg reported earlier this week humans remotely controlled some capabilities of the robots at the event. Sacconaghi noted that Tesla continues to lag well behind competitors when it comes to self-driving technology, and expressed concern that even if it becomes the first to achieve full self-driving, rivals will likely follow soon. "We do not believe the event provided sufficient detail to assuage our concerns, and believe the same is likely true for many investors," he wrote. To be sure, there are some that are still willing to give Tesla the benefit of the doubt. "First and foremost, Tesla is a Musk company," said Nicholas Colas, co-founder at 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." Still, after a 70% rally ahead of the robotaxi event, things are looking challenging for Tesla shares. The next catalyst to watch is third-quarter results, due next week, when analysts expect the company to report a 10% decline in profits from year-ago levels. "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, client portfolio manager at Zacks Investment Management. Tech Chart of the Day Nvidia Corp. shares are roaring back after the chipmaker's chief executive officer Jensen Huang successfully calmed investor concerns about product delays and its long-term growth prospects. The company's market capitalization of around $3.36 trillion is inching closer to Apple Inc.'s roughly $3.53 trillion as the battle for the world's most valuable company heats up again.