US EV market leader Tesla's autonomous robotaxi plans are a far less attractive investment thesis without a volume car business as a base, a leading automotive analyst says in the wake of the firm's reported cancellation of the Model 2.
According to Deutsche Bank lead automotive analyst Emmanuel Rosner, any confirmation of a Tesla decision to prioritise its robotaxi project would make it "much more difficult to remain patient and positive" for long-term investors, and will see the firm punished by the same autonomy bulls that gave the firm a valuation multiple unprecedented in the auto industry.
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Tesla faces a Catch-22 scenario in which its prospects in autonomy have long been at least partially responsible for the firm's sky-high valuation multiple compared to other automakers, but the investment thesis for robotaxis is changed materially by being shifted to become the company's core business, instead of a supplement to a steady volume car business.
"We very much worry that long-term investors who have been supportive of the stock will basically say, 'we loved robotaxi as long as it was an optionality, but now this is the core business, it is a completely different risk profile,'" Rosner cautions.
Revised expectations
As a result, Deutsche Bank has downgraded to a Hold rating and made a $66 cut to its price target, which is now $123.
"Long-term investors are excited about robotaxis. It is a good business; it is something that has the potential to be a meaningfully better business than making cars. It is recuring revenues, it is software revenues; it is great," Rosner says. "The problem is what probability of success can you attribute to it?"
Even if commercially successful autonomy could be guaranteed, Rosner's concern is that the "the current business is essentially fading", leaving Tesla with no viable products in the interim while its Full Self Driving software and robotaxi production lines are optimised.
Tesla will find it difficult to keep investors interested based on the robotaxi play alone, because the technology is "way past most people's investment horizons in terms of monetising", Rosner warns. "It is much higher risk and it is also way too far out."
Analysts have also drawn attention to a lack of clarity around what exactly Tesla's planned August unveiling of its robotaxi will entail. And Rosner is unconvinced that the event later this year will serve as a guarantee of any imminent commercialisation of Tesla's self-driving tech beyond its current automated driver assistance systems (ADAS) capabilties.
"My guess is because they have been working on Model 2 to an extent up until now, they will still be showing a product. It may actually look very much like a Model 2 just with without a steering wheel, so this would be the concept," he says.
And with lack of expectation that August will bring material details about cost, timeline, and regulatory hurdles that the project needs to clear, focus is heavily on tomorrow's post-bell Q1 earnings call for Musk to calm market jitters.
"There could be darker days ahead if Musk does not handle the call like an adult in the room and give some sort of vision and navigation," says long-term Tesla bull Dan Ives of Wedbush Securities.
Ciaran has written about finance, politics and culture. He is passionate about e-mobility and what it means for our way of life.
Ciaran has a Masters in Ancient Philosophy from Oxford University.
