One of the most important stocks in the market for active investors for decades (and passive investors as well, who own most market cap-weighted index funds) is the largest electric vehicle maker in the U.S.: Tesla (TSLA).
www.barchart.comAfter reporting stronger-than-expected deliveries recently, TSLA stock has been on a volatile ride. The EV maker is still tethered to interim results around its auto business, as this generates the vast majority of its revenue and earnings. Accordingly, this stock price move we've seen in recent weeks is par for the course.
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That said, long-term investors in Tesla and the vision of the company's CEO Elon Musk have been well rewarded by buying into the CEO's vision. With robotics, AI, and autonomous driving as the key catalysts investors are now focusing in on, Tesla's recent announcement that the company has rolled out robotaxi service in Miami on Sunday should be worth considering.
So, let's do just that.
What Was Announced?
Tesla announced the company has expanded its autonomous vehicle technology to another market this week. Moving into the Miami market with its robotaxi service, investors betting on a nationwide rollout have plenty to like about the company's future revenue and earnings growth prospects.
The robotaxi business is one that's taken longer to get off the ground than many were hoping. That said, with a significant chunk of Elon Musk's future pay package tied to this unit (as well as the company's Optimus rollout), investors are now paying less attention to the company's underlying Tesla production business and more toward its future-facing endeavors.
Tesla now operates its fully autonomous ride-hailing business in Austin, Texas, and Miami/Miami Beach, Florida. New markets are expected to follow, though regulatory guidelines in various states differ to a great degree.
What Do Tesla's Fundamentals Suggest?
Tesla's valuation is very removed from its current operations for the reasons cited above. Most investors in this tech giant are focused more on where the company is headed than on where it has been. Accordingly, looking at the multiples below, it's difficult to argue that there's a fundamental case today to be made to invest in the stock.
www.barchart.comOf course, for those thinking five or 10 years from now, and who believe autonomous robotaxis will proliferate dramatically, a 328-times forward earnings multiple may make sense. I'm not in that camp, and I've been a Tesla bear for a long time. But I've been wrong for longer than I can remember about this company, so the market is saying something entirely different.
The question I think will be most important to answer, and which we don't have a solid understanding of yet, is whether Tesla's earnings and cash flow margin profile will improve meaningfully from here. We'll see about that—therein lies the bulk of the Tesla investment thesis, in my view.
Are Wall Street Analysts on Board With This Valuation?
Overall, Wall Street analysts appear to be on the fence regarding Tesla's future price momentum from here. Rated a consensus “Moderate Buy” by the analysts who cover TSLA stock, Tesla's price target is hovering within a single percent of its current price, suggesting the experts believe this name is essentially fully priced.
www.barchart.comI think that's probably a fair assessment of Tesla, given the growing uncertainty in the macro environment. That's to say nothing of the tepid initial public offering of Musk's other key concern: SpaceX (SPCX).
The proof will ultimately be in the pudding a few years down the road. If Tesla can't produce a meaningfully accretive robotaxi segment (from an earnings and free cash flow perspective) at least in its core markets it's scaling in, this is a stock that could have further downside from here.
We'll see. I've been wrong more than I've been right with Tesla. But the current market dynamics certainly don't point in a positive direction right now for the EV giant, in my view.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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