The stock of the electric vehicle (EV) pioneer, Tesla, faces a potential decline unless CEO Elon Musk and his team exceed expectations for the third-quarter results or at least meet expectations during the earnings call.
Last Thursday, Tesla introduced its highly anticipated robotaxi, the Cybercab, revealing 21 units. The vehicle features a design reminiscent of the Tesla Model 3 at the front and the futuristic Tesla Cybertruck at the rear. Purpose-built as an autonomous vehicle, it lacks a steering wheel and pedals.
As is customary with new Tesla product launches, CEO Elon Musk generated considerable excitement among investors and tech enthusiasts ahead of the event. Appropriately staged at Warner Bros. Discovery’s movie studio in Burbank, California, the event was impressive from a theatrical perspective.
Tesla’s stock experienced an 8.8% drop on Friday, a day when major stock indexes rose. This reaction was somewhat expected following the lack of detail at the event, which left some individuals questioning its substantive value. Although Tesla’s stock saw slight increases on Monday and Tuesday, it remained 8% lower by Tuesday’s market close compared to its position before the robotaxi announcement.
Meanwhile, investors were purchasing shares of ride-hailing leaders Uber Technologies and Lyft, which surged by 10.8% and 9.6%, respectively. The limited details shared by Tesla about initiating a ride-hailing service using its autonomous vehicles was seen as positive news for Uber and Lyft, companies well-positioned to lead in the autonomous vehicle ride-hailing sector.
Musk’s public remarks were brief, lasting around 20 minutes for those streaming the event. Approximately 3.4 million people watched via Tesla’s X (formerly Twitter) feed. However, the event continued for attendees, who enjoyed refreshments served by Optimus robots and had the opportunity to experience rides in a Cybercab or a driverless Tesla Model Y around the studio set.
Tesla is under pressure to ensure the success of its Cybercab and forthcoming ride-hailing service. The company has been grappling with a slowdown in EV sales growth due to a decelerating market and increased competition. To stimulate sales, Tesla has been reducing prices, which has impacted margins and earnings.
The company’s energy and other segments have been performing satisfactorily, although these alone may not suffice to significantly elevate Tesla’s stock in the long term. Consequently, the success of the Cybercab and ride-hailing service is imperative, and its launch is expected soon.
During the unveiling event, Musk stated that production of the Cybercab is anticipated to begin “before 2027,” a timeline some might consider optimistic alongside its projected cost of “below $30,000.” Musk also revealed plans to operate fully self-driving vehicles, the Model 3 and Model Y, in California and Texas by next year, contingent on regulatory approvals.
Currently, Tesla is trailing in the robotaxi market. However, this does not preclude the possibility of it catching up to or surpassing current leaders like Alphabet’s Waymo, which is regarded as the leader in the U.S.
With third-quarter results set to be reported after market close on Wednesday, Oct. 23, investors are likely to hold Tesla to high expectations in the wake of the lackluster robotaxi event. Tesla’s stock is trading at 72 times forward earnings, a high valuation for a company whose earnings are projected to grow annually between 12% and 15% over the next five years. The elevated valuation reflects expectations that Tesla will exceed Wall Street’s earnings estimates over time.
The stock might face another significant downturn if Musk and his team do not at least meet the expectations in the earnings call next Wednesday. Wall Street anticipates Tesla will report the following for the third quarter:
– Revenue of $25.33 billion, representing an 8.5% year-over-year growth
– Adjusted earnings per share (EPS) of $0.58, indicating a 12.1% year-over-year decline