Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
Tesla (NASDAQ: TSLA) not only dominates the US domestic EV market with a 49.7% share, but the company heavily leverages forward-looking investing. Buoyed by consistent profitability since Q1 2020, TSLA stock gained 1,433% value over the last five years.
However, once across the profitability milestone, the expectation of Tesla shareholders shifted to sustainable growth. After Chinese EV companies scaled their operations, this is now in doubt. Over the last three months, TSLA stock returned 35% value, presently priced at $247 per share.
Much of that rally can be attributed to the Biden administration as it quadrupled tariffs on Chinese EVs from 25% to 100% in mid-May. Already forced into aggressive price cuts to continue to participate in the Chinese EV market, Tesla’s gross profit margins were halved from its peak of 29.1% in Q1 2022 to 14.6% in Q2 2024.
Even with beneficial tariffs in play, this trend does not bode well for Tesla except for one trump card – robotaxi.
Tesla’s Valuation Ahead of Robotaxi Event
At the moment, Tesla’s price-to-book (P/B) ratio is 11.45, meaning that investors view the company’s shares 11x the value of its net assets. Likewise, Tesla’s discounted cash flow (DCF), as a measure of future cash flows, is at $62.8, accounting for free cash flow forecasts over the next five years. This suggests that Tesla stock is overvalued by 75%.
These values represent Tesla’s future market positioning. If a cheaper Tesla car comes into play, like Model 2 in 2025, it would still lag behind BYD’s Seagull at $25k vs ~$13k to break the affordability barrier as the main EV mass adoption obstacle.
What is difficult to account for is Tesla’s robotaxi development scheduled for the big reveal on October 10th. As a teaser for Full Self-Driving (FSD) technology, Tesla revealed its latest feature Actually Smart Summon on Monday.
After a day’s shopping, one could easily see how useful it would be to summon a car to greet shoppers at the gate. Effectively, this would boost the status of Tesla ownership (both cars and stock) further as this feature alone would be akin to having a personal chauffeur.
Over the day, TSLA stock got a 3% boost, suggesting that the robotaxi reveal will have an even greater catalyst effect on Tesla valuation.
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Is FSD Unique to Tesla?
As one would expect, China has gone the farthest in implementing autonomous driving. Blending friendly regulations with the latest developments in machine vision and AI, Baidu’s Apollo Go is effectively the world’s only robotaxi service at scale. At the same time, Tesla is still doing well in China.
By the end of 2024, Apollo RT6 robotaxis should cover the entire city of Wuhan with 1,000 units. As a matter of investment, this then puts the ownership of personal cars into question. Such a robotaxi service would disincentivize people from buying cars if the public transportation alternative is no longer the only one.
By the same token, Tesla’s FSD would be transformative for the company’s bottom line. Tesla would still produce cars, but at a more consistent rate for the robotaxi service. In turn, the company would generate a steady cash flow as a de facto public transportation service. More importantly, Tesla would no longer rely on cyclical consumer behavior.
“The entire Tesla fleet basically becomes active. This is obviously — maybe there’s some number of people who don’t want their car to earn money. But I think most people will. It’s instant scale.”
Tesla CEO Elon Musk in Q2 2024 earnings call
The enormous potential in robotaxi was enough for Cathie Wood, CEO of ARK Invest, to up TSLA stock valuation by 10x to $2,600 per share by 2029. Although Baidu is likely to cover the Chinese market, Tesla has a big first mover advantage.
The dependability of FSD relies on accumulated driver data that Tesla successfully siphoned over the years. It is then a question if Tesla’s AI will put it to good use to also cover fringe driving scenarios. The only Tesla contenders in the US are Alphabet’s Waymo and General Motors’s Cruise, both of which offer Level 4 autonomy (human presence but high automation).
What Is Expected for the Tesla Robotaxi Event?
Scheduled for October 10th at Warner Bros. Studios in Los Angeles, Tesla is to unveil its Cybercab prototype as the purpose-built robotaxi. Unlike the Waymo and Cruise approach that relies on geofencing, Tesla’s FSD should offer autonomous driving without this limitation.
Having accumulated over 600 million miles worth of driving data, investors should expect to see live robotaxi demonstration. As viral videos are rolled out across social media, TSLA shareholders should expect a boost to their portfolio. On Friday, Bank of America Securities placed a $255 TSLA price target in anticipation of the Robotaxi Event.
However, it remains to be seen if robotaxi is viable in the long run. The fact that General Motors suspended Cruise Origin robotaxi rollout in July is a reminder that the entire enterprise depends on a robust federal regulatory framework. To that effect, a greater catalyst for Tesla would be former President Trump’s second term.
Not only has Trump stated that he would eliminate all DEI requirements across federal agencies, but that he would cut red tape and further increase tariffs against China. Following the first assassination attempt, Elon Musk publicly endorsed Trump.
Do you think Tesla has what it takes to corner the highly promising robotaxi market? Let us know in the comments below.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
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