New York (Business Emerge), July 25: Tesla’s share value took a significant hit on Wednesday, dropping by 11% and wiping nearly $90 billion from its market capitalization. This decline follows CEO Elon Musk’s recent emphasis on advanced technologies like humanoid robots and autonomous taxis, which did little to assuage investor fears over the company’s diminishing profit margins.
On Tuesday evening, Tesla reported its lowest quarterly profit margin in five years, with earnings per share falling short of projections for the fourth consecutive quarter. This downturn has left Tesla’s market value at $700 billion, a stark decrease from over $1 trillion in 2021. Despite remaining the world’s most valuable automaker, Tesla’s valuation is heavily dependent on anticipated future profits from unlaunched products, such as robotaxis and robots.
TD Cowen’s Jeff Osborne noted that Musk’s recent enthusiasm, aside from advancements in energy storage, centered around products that have yet to materialize. This, coupled with Alphabet’s (Google’s parent company) report highlighting increased capital expenses, contributed to a rough start for Q2 earnings reports among Wall Street’s top firms. Alphabet’s stock also fell nearly 5%.
Tesla’s electric vehicle (EV) deliveries have declined for two consecutive quarters, and the company has yet to introduce a lower-cost model, which has driven customers towards competitors like China’s BYD, which increased its sales lead over Tesla in Singapore during the first half of 2024.
To stimulate sales of its aging vehicle lineup, Tesla has been forced to reduce prices and enhance incentives. Musk acknowledged that rival companies’ significant price cuts have complicated Tesla’s sales efforts. The company anticipates that its upcoming cheaper models, expected in early 2025, will not achieve the cost reductions previously hoped for, and the debut of the robotaxi has been postponed to October.
UBS analyst Joseph Spak highlighted that Tesla is currently valued based on its autonomy and AI prospects, suggesting that any potential benefits from these initiatives are likely a distant reality. Tesla’s stock currently trades at 85 times its 12-month forward earnings estimates, a stark contrast to the 7 times earnings ratio of traditional automaker Ford Motor.
On Tuesday, Musk reported that Tesla’s Optimus humanoid robot has begun performing tasks autonomously and expressed optimism about self-driving Tesla vehicles being operational without human oversight by next year. However, he had previously projected a robotaxi network by 2020, raising doubts about the realism of the new October 10 launch date.
Musk also conducted a poll on X, formerly Twitter, asking whether Tesla should invest $5 billion in his AI startup, xAI, with plans to reserve a portion for investors in X. The value of X has significantly decreased since Musk’s $44 billion acquisition.
Some analysts are skeptical about the feasibility of Tesla’s 2025 robotaxi timeline, suggesting that the company’s self-driving technology may not achieve full autonomy until the end of the decade, if at all. The recent price cuts and incentives have reduced Tesla’s automotive gross margins, excluding regulatory credits, to 14.6% for the second quarter.
Despite these disappointing results, only one of the 50 analysts covering Tesla’s stock downgraded their rating, while there were three increases and two decreases in price targets. On average, analysts rate Tesla’s stock as a “hold,” with a median price target of $212.50.