Tesla's Troubling Robotaxi Event Sparks Major Selloff

Tesla investors are reeling following a disappointing robotaxi event that revealed a troubling disparity between the company's lofty stock valuation and its actual performance. Last week’s event, which showcased the much-anticipated Cybercab and Robovan concepts, left Wall Street with more questions than answers.

Wall Street was particularly frustrated by the vague details regarding the rollout plan and the lack of regulatory approvals before the launch. Analysts had hoped for concrete updates, including news about a more affordable standard electric vehicle. Instead, they were met with an unclear timeline and a promise of future innovations that may take years to materialize.

CFRA analyst Garrett Nelson compared the experience to 'watching a movie filled with plot twists and special effects, but leaving the theater still confused.' Investors are now faced with the challenging task of reassessing Tesla's stock price following a staggering market selloff that erased over $60 billion in valuation almost instantly. This selloff starkly contrasts the previous surge of more than 70% in Tesla's stock since Elon Musk began emphasizing artificial intelligence in April, which had boosted the company's market capitalization beyond $760 billion—an astonishing figure that dwarfs that of traditional automakers like General Motors and Ford.

With such a massive valuation, Nelson warned that we might be witnessing the onset of a more sustained downturn. He pointed out that Tesla's earnings growth appears to have stalled, with crucial intermediate-term growth strategies remaining ambiguous. Bernstein’s analyst, Toni Sacconaghi, echoed these concerns, emphasizing that the event provided little in the way of immediate gains or additional revenue streams. He conservatively valued Tesla's automotive business at about $200 billion, suggesting that an alarming $600 billion of its valuation rests upon riskier, unverified ventures—like Full Self Driving (FSD) technology and humanoid robots.

Industry experts, including Guggenheim's Ron Jewsikow, are sounding alarms about the company's current fundamentals. He noted that Tesla's operating margins dropped to 6.3% in the second quarter, a steep decline from 14.6% two years prior. This signifies that the economic performance of the company is under increasing pressure as competition in the EV market intensifies, particularly from automakers like GM who are ramping up production.

In light of these poor fundamentals, Jewsikow put the fair value of Tesla shares at around $153 each, highlighting the unsustainable nature of a company trading at 100 times next year’s projected earnings without significant free cash flow.

In the face of this turmoil, Tesla's stock showed slight signs of recovery in early trading on Monday, climbing about 2%. However, the shares are still down over 17% for the year following a dramatic 9% drop last Friday. With Tesla scheduled to release its third-quarter earnings after the market closes on October 23, the question remains: Will the numbers back the hype or expose deeper issues?

Investors are bracing themselves as they prepare for what could be a pivotal moment for Tesla.

Stay tuned for updates on this developing story as more insights unfold!