With Tesla Stock Down 31%, Musk’s Robotaxi Push Aids Short Sellers

With Tesla stock down 31% this year as of April 12, is the electric vehicle company’s stock cheap or overpriced?

I think the shares — a mere 3.88% of which were sold short on March 28, according to the Wall Street Journal — are too expensive. How so?

• Tesla delivered far fewer vehicles than expected and forecasts more disappointment.
• Tesla seems hesitant about winning over value-sensitive buyers — leaving the market to lower-priced rivals such as BYD.
• Tesla’s pivot to Robotaxis has little chance of restoring revenue growth.

Like Apple
AAPL
, shares of which are down 5% so far in 2024, Tesla is reluctant to challenge Chinese rivals who offer consumers high quality products at much lower prices.

As a result, analysts appear to be losing patience with Tesla’s disappointing growth.

I contacted Tesla and will update this post should I receive a comment.

Tesla Is Falling Short Of Investor Expectations

The brakes have been slammed on Tesla’s growth As I wrote in an April 2024 Forbes post, Tesla issued a weak fourth quarter report and delivered below-expectations guidance for 2024. The vehicle maker’s operating margin dropped significantly and first quarter 2024 vehicle deliveries fell way below the analyst consensus.

Here are the key numbers:

• Q4 2023 revenue: $25.17 billion — up 3% from Q4 2023 and about $500 million short of LSEG expectations. A “reduced average selling price following steep price cuts around the world in the second half of the year” contributed to the meager revenue growth, according to CNBC.
• Q4 2023 operating margin: 8.2% — roughly half the Q4 2023 figure, CNBC reported.
• 2024 vehicle volume forecast: Electric vehicle volume growth in 2024 “may be notably lower” than the rate observed last year, as Tesla “shipped 1.8 million cars in 2023,” CNBC wrote. The absence of a specific 2024 production target departs from previous years. In 2023, deliveries rose 38% — well short of the 50% target. Analysts predict a 20% increase in 2024, noted Bloomberg.
• 2024 Q1 vehicle deliveries: 386,810 — 14% below the “analyst consensus estimate of 449,080,” noted an April email from investment manager, Louis Navellier.

Could Tesla be trying to lower investor expectations enough to exceed them April 23 when the company reports first quarter 2024 financial results?

Tesla Is Running Away From Customers And Competition

Consumers are getting far more value-sensitive — meaning they want a safe, low-cost way to drive. As I wrote in a January 2024 Forbes post, with gasoline prices having fallen substantially, relatively high EV prices, long charging times, and range anxiety are among the significant negatives EV makers must overcome.

China-based rivals BYD and Li Auto are responding to these consumer preferences by setting much lower prices for the EVs, according to the Wall Street Journal, thus capturing Chinese market share from Tesla.

With Tesla’s Model 3 and Model Y accounting for 96% of Tesla’s first-quarter deliveries, pressure on Tesla to introduce its Model 2 has become “imperative,” noted Navellier.

Rather than compete for value-sensitive customers, Tesla appears to be running away from them. “Reuters reported Tesla had scrapped its plans for a long-promised, lower-cost electric vehicle, known as the Model 2. Musk denied the report by saying ‘Reuters is lying,’ ” noted MarketWatch.

One analyst expressed distrust of Musk’s response to the Model 2 cancellation report. There is “little evidence that it is aggressively in progress, as we would expect for a car due to start producing at commercial scale at the end of next year, per Elon’s latest dubious promise,” noted founder and CEO of the Bond Angle LLC Vicki Bryan in an email featured by MarketWatch.

Is Tesla unwilling or unable to sacrifice profitability to offer EVs that consumers view as delivering more bang for the buck than BYD’s $25,000 products?

Tesla’s Robotaxi Is Unlikely To Boost Growth

Musk has a track record of changing the subject when Tesla disappoints. For example, in January 2024, he told investors in an earnings call his excitement about shipping Optimus robots after the company’s disappointing results. CNBC reported.

During that call, he hyped the Cybertruck — saying Tesla could make 125,000 of them per year with demand for the vehicle exceeding the company’s ability to produce them, noted CNBC.

This week, Musk touted an August reveal of a robotaxi — a self-driving vehicle with no ability for drivers to take control. In my view, Tesla’s robotaxi is unlikely to boost the company’s revenue growth. Here are my reasons for skepticism:

Tesla Lags Waymo In Launching a Robotaxi Fleet

Tesla is far behind Waymo, the robotaxi industry leader, which is not close to building a significant business.

Waymo’s fleet has driven 20 billion miles and now runs commercial robotaxi services in San Francisco and Phoenix and launched operations last week in Los Angeles.

Sadly, there are good reasons for consumers to avoid robotaxis. For example, in February 2024, a Waymo driverless vehicle “collided with a cyclist in San Francisco at a four-way intersection, where the cyclist was initially blocked from view by a truck,” noted MarketWatch.

Tesla Self-Driving Technology Is Flawed

Robotaxis depend on self-driving technology which Tesla has failed to master. Musk has been encouraging new Tesla customers to purchase the driver-assistance system “while also defending against litigation that it doesn’t work as promoted,” according to the Wall Street Journal.

Tesla’s Full Self-Driving technology is a misnomer because the$12,000 FSD requires drivers to maintain attention on the road — and should there be an accident while FSD is engaged — Tesla holds the driver legally responsible.

In October 2019, Musk predicted Tesla would have one million robotaxis on the road in 2020, according to The Drive. By 2024 the actual number was zero, noted the Journal.

“They are clearly years away from getting there,” Philip Koopman, associate professor of electrical and computer engineering at Carnegie Mellon University, toldMarketWatch.

“This is a multi-year problem. Any claim of ‘we are going to solve it right away, even though we clearly haven’t solved it, but in less than 12 months it will be solved and then ready to scale,’ is just not a credible claim by anyone, I see no evidence that that is achievable by anyone anytime soon. Nobody is close,” Koopman added.

Tesla investors have reason to be skeptical of Musk’s boasts about the company’s robotaxi business.

Tesla Reportedly Lacks State Regulatory Permits To Operate Robotaxis

If Tesla has finally mastered the technology for the robotaxi, it will need state regulatory approval to operate a fleet of them. Robotaxi regulators in Arizona, California and Nevada have not been contacted by Tesla to apply for permits, according to NBC News.

“Tesla’s a long way away from getting that approval,” Brad Templeton, a consultant in the autonomous vehicle industry, told NBC News. Tesla “didn’t immediately respond” to NBC News’ request for comment.

What Analysts Expect For Tesla Stock

Will Tesla stock rise from here? Based on 35 Wall Street analysts offering 12-month price targets for Tesla, the average target of $196.72 per share represents 15% upside, notes TipRanks.

These price targets can yield investor confusion. Why did Wedbush analyst Dan Ives set a $300 per share price target for Tesla while writing “Musk has two weeks to turn the ship around,” in an April 11 investor note featured by MarketWatch?

Ives seems poised to lower his rating on Tesla unless Musk explains in an April 23 earnings call how the company will boost revenue growth. He wants Musk to explain how Tesla will launch the Model2 in late 2025 and compete in the sub-$30,000 electric vehicle segment — which accounts for 60% of Ives’ growth forecast, noted MarketWatch.

If Musk talks too much about the robotaxi without offering “the growth strategy for Tesla in China (and globally) to reverse this negative demand trend,” Ives could lower his price target for the company, MarketWatch reported.