Tesla's Self-Driving Tech: A High-Stakes Gamble
Tesla's CEO Elon Musk is banking on the company's full self-driving (FSD) technology, along with other new vehicles and technologies, to provide the "wow factor" that will keep the electric carmaker ahead of its automotive competitors. However, some investors and analysts are concerned that Tesla's high market valuation, which is currently about 43 times expected earnings, is threatened by factors such as price cuts, which have undermined the company's margins, and delays in releasing new models and revisions to its FSD software.
David Trainer, CEO of investment research firm New Constructs, said, "Tesla faces an increasingly uphill battle to secure its competitive position, which makes its current valuation look even more unrealistic. The Tesla bull case has centered around the company's growth goals, which it is failing to meet." Tesla's stock price fell by 9.75% to $162.99 on Thursday, down from astronomical levels above 200 times in 2021, according to Refinitiv data. Nonetheless, the company's valuation still remains several times higher than that of legacy carmakers, with Ford Motor Co trading at about 8 times expected earnings and General Motors Co trading at under 6.
In the first quarter of this year, Tesla posted its lowest quarterly gross profit margin in two years, and the company has continued to wage a price war that it started at the end of last year. Musk stated that Tesla would prioritize sales growth over profit. Morningstar analyst Seth Goldstein said, "The market wants to see that Tesla management has a tangible plan to boost automotive gross margins and companywide operating profit margins over the coming quarters and in the next year or so. I also think the market wants to see a growth plan that does not involve continuous price cuts."
Musk dismissed these concerns, stating that the company is likely to achieve full self-driving this year, which he claims would be a significant profit generator. Tesla now sells the FSD software, which does not make the vehicle autonomous, for $15,000, nearly a third of the roughly $47,000 current starting price of the base Model Y in the United States. "We're the only ones making cars that technically, we could sell for zero profit for now and then yield actually tremendous economics in the future through autonomy," Musk said on a conference call with analysts on Wednesday. "I'm not sure how many people will appreciate the profundity of what I've just said, but it is extremely significant."
Despite Musk's optimism, some skeptics remain unsure about when Tesla will launch FSD. Law professor Bryant Walker Smith, who closely follows the development of advanced vehicle technologies, said, "This is a bit like the boy who cried wolf, except in our story the wolf would be a good thing that never seems to come. It's not clear to me how that timetable in any way is consistent with the evidence we have seen," adding that the current version of FSD is "highly imperfect."
Tesla has several key products in the pipeline, including the Cybertruck pickup later this year and a lower-cost car expected in late 2024 or early 2025. The company also believes that robots could be a bigger profit generator than EVs in the long run. Star stock picker Cathie Wood's Ark Invest has predicted that Tesla's shares will reach $2,000 by 2027, driven up over 1,100% from current levels by Musk's plan to launch a fleet of robotaxis. Tesla is the Ark Innovation ETF's top holding, and the investment firm's previous Tesla predictions have raised eyebrows among many investors.
Technology adviser, author, and investor Evangelos Simoudis believes Tesla may have "an even bigger opportunity" in energy generation and storage with its solar.
