Tesla (NASDAQ:TSLA) shares have struggled in recent weeks after beating expectations for delivery in the second quarter. The Elon Musk-led company has seen its shares rise 40. 9% over the past 30 days and is now trading at massive valuation multiples. I remain impartial to Tesla, as I understand that Robotaxi and robotics can be a game-changer for the company, but the valuation is hard to justify.
In the second quarter, Tesla’s deliveries were down 4. 8% year-over-year (year-over-year), but that was more than the market expected. In the three months ended June 30, Tesla delivered 443,956 vehicles, an increase of 14. 8% from the first quarter. Since then, inventory has increased, with positive figures in the electric vehicle (EV) sector suggesting a resurgence in demand.
Tesla’s stock had already surged in June after shareholders voted to give Musk his $56 billion salary package for 2018 and reincorporate the company in Texas. The news sent Tesla shares jumping more than 10%, taking them above $200 per share.
As an automaker, Tesla is obviously overvalued. Even Elon Musk has called on investors to think of Tesla as a robotics or synthetic intelligence (AI) company and not a company that only focuses on generating road vehicles, even if they are electric. Thus, some analysts would possibly wonder why Tesla, which was already trading at maximum multiples, soared thanks to those early EV deliveries. That’s a smart point.
In turn, this leads to a price-to-earnings (PEG) ratio of 8. 7x. This is far beyond what’s considered exciting (1. 0x or less).
Other parameters compound this unattractive valuation. Inventory trades at 8. 3 times TTM sales and 7. 9 times futures sales, representing a premium of 830% and 813% for the sector, respectively. Tesla’s forward price-to-cash ratio of 63. 9x also represents a 585% premium for the industry as it whole.
However, Musk touted two major developments, which are expected to materialize in the next 18 months. The first is the highly anticipated Robotaxi, which will be unveiled on August 8, and the time is the sale of its Optimus robots, which could only begin in the second part of 2025.
Autonomous driving gives Tesla a chance to dominate a new and exciting segment. From the outside, Tesla turns out to be at the forefront when it comes to automation. We’ll know more on August 8. Even Nvidia (NASDAQ:NVDA) CEO Jensen Huang agrees, recently noting that Tesla is “moving forward” in the field of autonomous driving technologies.
Despite Robotaxi’s outlook, I’ve noticed very few predictions from analysts looking to quantify that outlook. Cathie Wood’s ARK is an exception. According to ARK Invest, approximately 90% of Tesla’s profits will be attributed to the Robotaxi business in 2029. In ARK’s bearish scenario, the autonomous travel business would generate $603 billion by 2029. In its bullish scenario, this figure increases to $951 billion. In turn, this led Wood’s investment fund to recommend that the stock will be worth $2,600 in 2029.
It is worth acknowledging that many have dismissed ARK Invest’s forecasts as too ambitious. On the one hand, the global ridesharing market is expected to be worth $215. 7 billion through 2028 (according to Statista). than what ARK estimates Tesla would generate from ridesharing in its bearish case by 2029. I can only assume that Wood’s background infers that self-driving cars will bring about a massive shift from car ownership to ride-sharing.
There are also questions about how Tesla could mass-produce a fleet of robotaxis giant enough to generate the numbers projected through ARK. Assuming a production cost of between $150,000 and $200,000 (according to ARK Invest), building a global fleet of Robotaxis would be most likely. It will probably charge billions. Tesla doesn’t have the money to build a global fleet.
Since the first-quarter results, Musk has also touted the potential of Tesla’s robots, with a “limited production” of its Optimus robot in 2025. According to Musk, robots can turn Tesla into a $25 trillion company. However, making an investment in Tesla for its robotic functions may simply be highly speculative, given how little wisdom we have.
Although Tesla is in the first position to dominate the autonomous era, I am wary of Musk’s excessive promises. This makes it very difficult to maintain inventory that has been trading at 96. 4 times non-GAAP future earnings lately. Its value may be simply perfect, and if Musk fails to meet its expectations on Aug. 8, the value of the stock could pull back significantly. That’s why I remain neutral.
Disclosure