Tesla’s Robotaxi Reveal Falls Flat: Investors React

Tesla‘s (NASDAQ: TSLA) big robotaxi event did not meet investor expectations, leading to a drop in its stock price. Despite a positive stock rally over the past quarter in anticipation of this presentation, the electric vehicle (EV) market continues to struggle with declining sales.

Investors are now left to consider whether this moment presents a buying chance or a reason to sell Tesla stock.

New Offerings: Cybercab and Robovan

Originally scheduled for August, Tesla finally showcased its new cybercab—a streamlined, two-seat vehicle that lacks a steering wheel or pedals. This unique design raises questions about its practicality since it limits transportation options for families or groups. As a complement, Tesla also unveiled a 20-passenger robovan, designed for larger travel groups like sports teams.

According to the company, consumers can purchase a cybercab for under $30,000. However, this price point is in a niche market mostly dominated by sports cars, where buyers typically seek a different driving experience.

The company aims to start producing these vehicles before 2027. Yet, CEO Elon Musk noted that he often holds optimistic views. No specifics regarding safety features, driving range, or technology were shared during the event.

Musk expressed hopes that Tesla would initiate unsupervised full self-driving (FSD) testing in California and Texas next year, but he did not detail any technological advancements that would ensure success. Tesla’s supervised self-driving tech has faced numerous challenges and has been linked to hundreds of crashes.

Image source: Getty Images.

Before the event, Reuters reported that Tesla’s robotaxi relies on a “black box AI gamble.” The article cited experts and a Tesla engineer, highlighting that without technologies like radar and lidar, Tesla’s system struggles with unusual driving situations. Furthermore, with a black box AI system, Tesla cannot easily identify failures when accidents happen, raising serious safety concerns. Although Tesla’s technology is cost-effective, many questions remain regarding its safety.

TechCrunch pointed out Tesla’s track record of overpromising on autonomous driving capabilities. Musk previously claimed in 2015 that Tesla would achieve full autonomy in two years and in 2019 suggested a million robotaxis would be operational by 2020.

In addition to the cybercab reveal, Musk praised Tesla’s Optimus robot, calling it the company’s greatest opportunity. The robots are expected to sell for between $20,000 and $30,000. During the event’s afterparty, robots could be seen serving drinks and dancing, operated remotely by Tesla staff.

Should You Invest in Tesla Stock?

The details surrounding Tesla’s cybercab were scant, and given the company’s previous performance, there are no guarantees the robotaxis will hit the road by the targeted 2027 timeline. Even if Tesla secures necessary approvals, it still lags behind Alphabet‘s Waymo, which currently provides paid rides in multiple cities, including San Francisco and Atlanta.

Moreover, Tesla’s main EV operations are showing signs of decline. The electric vehicle market is slowing down, and Tesla’s sales are falling behind. Last quarter, deliveries dropped by 5%, and auto revenue decreased by 7%. Additionally, the Q3 delivery figure of 462,890 units fell short of the expected 469,828.

At present, Tesla trades at a forward price-to-earnings (P/E) ratio of 68 based on next year’s predictions. In comparison, conventional automotive companies typically have P/E ratios below 6, indicating that Tesla might be significantly overvalued.

TSLA PE Ratio (Forward 1y) data by YCharts

Currently, the optimistic outlook for Tesla hinges on its robotaxi and robotics plans. However, the recent event failed to provide clear evidence that the company is making significant progress towards these objectives.

Considering Tesla’s valuation challenges, issues within its core business, and the skepticism surrounding its autonomous driving technology, it may be prudent to reconsider holding onto Tesla stock at this time.

Explore New Investment Opportunities

Have you ever felt like you missed out on investing in successful companies? If so, here’s your chance to catch up.

Our expert analysts occasionally issue a “Double Down” stock recommendation for companies poised to succeed. If you’re worried about missing your chance to invest, now might be the best time to act, as the statistics show:

• Amazon: If you had invested $1,000 when we recommended it in 2010, you’d be looking at $21,266 now!*
• Apple: A $1,000 investment when we issued our recommendation in 2008 would now be worth $43,047!*
• Netflix: Investing $1,000 when we doubled down in 2004 would have grown to $389,794!*

At present, we are issuing “Double Down” alerts for three exceptional companies, and this may be a unique opportunity.

See 3 “Double Down” stocks »

*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. Geoffrey Seiler has positions in Alphabet. The Motley Fool holds positions in and recommends Alphabet and Tesla. The Motley Fool recommends General Motors and Stellantis and has the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.

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