Tesla’s Cybercab Reveal: A Missed Opportunity Resounding in Stock Movements

Last Thursday night, electric vehicle (EV) pioneer Tesla (NASDAQ: TSLA) unveiled its highly anticipated robotaxi – actually, 21 of them – called the Cybercab. This two-seater resembles a Tesla Model 3 in the front and a futuristic Tesla Cybertruck in the back. Built as an autonomous vehicle, it notably lacks a steering wheel or pedals.

As is customary with Tesla product launches, CEO Elon Musk generated considerable excitement among investors and tech enthusiasts leading up to the event. Notably, the event took place at Warner Bros. Discovery‘s movie studio in Burbank, California, creating a fittingly impressive atmosphere.

Image source: Tesla.

Event Hype vs. Market Reaction: Tesla Stock Takes a Hit

On Friday, Tesla’s stock fell 8.8%, even as major stock indexes rose. It was not unexpected; many viewers were left thinking, “That’s it?” Overall, Tesla stock has remained 8% lower from pre-event prices, despite minor recoveries on Monday and Tuesday.

While investors were offloading shares of Tesla, they purchased stocks of ride-hailing leaders Uber Technologies and Lyft, which saw gains of 10.8% and 9.6%, respectively. The lack of concrete details about Tesla’s ride-hailing service with self-driving vehicles was interpreted positively for Uber and Lyft. These companies are well-positioned to lead in the autonomous ride-hailing market.

Musk’s speech lasted around 20 minutes for the live stream, watched by about 3.4 million people on Tesla’s X (formerly Twitter) feed. Attendees, however, enjoyed a more extended celebration, complete with drinks served by Optimus robots and a chance to ride in a Cybercab or a driverless Model Y.

It’s essential to note that my perspective on Tesla is objective. My review of its second annual Artificial Intelligence (AI) Day in October 2022 was cautiously optimistic. My main takeaways were:

Musk is known for ambitious projects, yet many may not progress beyond initial stages. However, selling humanoid robots [like Optimus] at scale appears more likely now.

Investors should appreciate Musk’s big thinking. Being an early player in sizable trends offers a valuable and lasting advantage.

Tesla’s Need for Cybercab Success Amidst Sales Challenges

Tesla faces hurdles in growing its EV sales due to a slowdown in the overall market and intensifying competition. To stimulate sales, the company has lowered prices, which negatively impacted its margins and earnings.

Data source: Tesla’s earnings reports. YOY = year over year. *Q3 financial results are scheduled to be released on Oct. 23. **Wall Street anticipated delivery growth of about 8% YOY, so the company fell short of this expectation.

While Tesla’s energy and other units are performing well, they likely won’t be enough to sustain stock value long-term. Thus, the success of its Cybercab and upcoming ride-hailing service is critical. A speedy launch is necessary for this venture.

During the event, Musk stated he expects Cybercab production to start “before 2027.” This timeline may be overly ambitious, as is his claim that the vehicle will cost “below $30,000.” He also indicated Tesla aims to operate fully self-driving vehicles – Model 3s and Ys – in California and Texas next year, contingent upon regulatory approvals.

Although Tesla currently lags in the robotaxi sector, there’s potential for it to catch up or even surpass competitors like Alphabet‘s Google, whose Waymo service leads the U.S. market.

Upcoming Q3 Report: Investors Heightened Expectations

Tesla is scheduled to report its third-quarter results after the market closes on Wednesday, Oct. 23. Following the disappointing robotaxi event, investors will likely expect more from Tesla’s Q3 outcomes and the details shared during the earnings call.

Currently, Tesla stock trades at 72 times forward earnings, a steep price for a company projected to grow earnings at an average of 12% to 15% annually over the next five years, depending on the source. Other valuation metrics also indicate an overvalued stock. This premium pricing suggests that investors expect Tesla to exceed Wall Street’s earnings forecasts long-term.

Should Musk and his team fail to provide substantial insights during the earnings call next Wednesday, Tesla stock could face further declines. Wall Street’s Q3 expectations for revenue and earnings per share are outlined below:

• Revenue of $25.33 billion, indicating 8.5% growth year over year
• Adjusted earnings per share (EPS) of $0.58, down 12.1% year over year

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*Stock Advisor returns as of October 14, 2024

Suzanne Frey, an executive at Alphabet, 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 in and recommends Alphabet, Tesla, Uber Technologies, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.