Tesla's 'dream premium' faces moment of truth at Robotaxi reveal event

By Esha Dey

The stakes for Tesla Inc. are high as investors eagerly await the first look at the company’s fully self-driving vehicle later on Thursday.
 

The electric vehicle maker’s nearly $800 billion market capitalization — more than eight times bigger than General Motors Co. and Ford Motor Co.’s combined value — is underpinned by investors’ expectation that the Elon Musk-led company will be a powerhouse in autonomous vehicles and artificial intelligence. The shares have risen nearly 70% through Wednesday’s close since Musk touted the pivot to AI in April, even as sales languished and profit sank.

Thursday’s event, where Tesla is expected to reveal the so-called Robotaxi, and likely another new vehicle, represents a “make or break night” for the shares, said Mike O’Rourke, chief market strategist at JonesTrading. The demo kicks off at 7 p.m. California time at Warner Bros. Discovery Inc.’s movie studio near Los Angeles. The stock was down 1.5% at 10:22 a.m. in New York on Thursday after falling as much as 3.6%. 

Dave Mazza, chief executive officer at Roundhill Financial Inc., agrees. “It’s not just about showcasing a new technology — it’s about proving their AI capabilities,” he said. That “could be pivotal to justifying their high valuation in the face of near-term financial challenges as the ‘dream premium’ comes due.” 

After some big talk from Musk, and with the event already delayed by two months, Tesla has a lot to prove. Underlying the pivot to AI is the fact that sales of Tesla’s cars are no longer growing at a breakneck pace, while fierce competition in electric vehicles is hurting margins. Unless Tesla can prove it has what it takes to lead the industry in autonomous vehicle technology, its claim to the lofty premium of its shares will start to look very shaky.

Tesla shares trade at 83 times forward earnings, compared to the mid-single-digit multiples of century-old carmakers General Motors and Ford. Chipmaker Nvidia Corp., which is firmly established as an AI winner, trades at 36 times earnings.

Whether Musk manages to dazzle by once again pulling a proverbial rabbit out of his hat, or fails to impress, one thing is for sure: Investors are in for some turbulence.

Bernstein analyst Toni Sacconaghi and CFRA’s Garrett Nelson both expect to see a “sell the news” reaction after such a big run-up into the event. 

“We believe Tesla is unlikely to actually deliver on the kinds of pledges that would send the stock higher,” Sacconaghi said, while Nelson pointed to “sky-high” expectations setting the scene for disappointment.

And even if Tesla shows a compelling model, the launch of a fully self-driving car may still be years — if not decades — away, because of the regulatory hurdles it will need to clear before such a vehicle can start testing on real roads.

“Solving full autonomy remains challenging, and Tesla still appears far away,” Emmanuel Rosner of Wolfe Research wrote in a note this week. 

Still, options market data indicates sentiment ahead of the event is somewhat positive. The one-month skew — which measures how expensive put options protecting against a decline are relative to bullish calls — is nearly flat, after holding a more bearish tilt for most of the past two years.

The combination of building optimism and high risks make for a combination that could catch traders off guard if Tesla fails to deliver. Technical strategists, who look at trading patterns in an effort to predict where stocks may be headed next, recommend watching the $220-$240 level. 

“A break below $240 would take it below its trend line from the intraday lows in August and the lows from last week,” said Matt Maley, chief market strategist at Miller Tabak + Co. Tesla shares closed at $241.05 on Wednesday.

On the other hand, if Musk convinces the market that Tesla is on the right path, the shares may finally take off. 

Maley said that the $260-$263 range has been a tough one for the stock to pierce. “If this announcement can help Tesla break above that level in any meaningful way, it will be extremely bullish on the technical side of things.”