Headline of the Day!

Today’s “Headline of the Day” award goes to Insider Monkey for this little chestnut:

promising
I guess if they’re talking about promises like: a budget-friendly $30,000 EV for the U.S. market, rolling out Full Self Driving cars (FSD), 1 million robotaxis on the road by 2021, mass producing the Tesla Semi long haul truck in 2019, battery range would hit 1,000 miles…

Then yeah, Tesla is “promising.”

I know, I know – it’s pretty easy to take potshots at Tesla right now.

But the fact is that Tesla's sales volumes have been getting crushed. In February, sales were down 50% in Europe, 70% in Australia, and 35% in California – its biggest US market. It’s a little difficult to parse the Chinese sales numbers, but February shipments from its Shanghai factory (which accounts for roughly half of Tesla’s total production capacity) were down 49% from the year before.

I realize there’s some pretty significant anti-Elon sentiment going on right now. But if you’re looking for a reason Tesla’s share price has been cut in half so far this year, it has more to do with those sales numbers than his politics.

I warned that Tesla was grossly overvalued back on December 19, 2024:

If there’s a weak link in the Mag 7, it’s Tesla.

Tesla trades for 15X revenue. You could look at Nvidia valued at 30X revenue and think Tesla doesn’t look so bad. But each company did roughly the same amount of revenue over the last 12 months ($96 billion for Tesla and $96 billion for Nvidia) – yet Tesla reported $14 billion on EBITDA earnings, and Nvidia reported $60 billion in EBITDA. That gives Nvidia a somewhat reasonable forward P/E ratio of 30, while Tesla sits at a very unreasonable forward P/E of 140.

Tesla shares closed at $420 that day. Now at $250, Tesla is still grossly overvalued compared to other car companies. GM and Ford have profit margins of 3.5% and 3.1%, respectively. And their forward P/E ratios are 7% and 4%. Tesla has a profit margin of 7% and a forward P/E ratio of 80!

The Robotaxi Challenge

Tesla’s falling sales in China is not a new story. Nearly a year ago, in April 2024, Elon Musk made a surprise trip to China to see if Tesla could get some help from the Chinese government. They were very accommodating, and Musk came back to the U.S. saying that Teslas would get an FSD license very soon.

If you don’t know, FSD stands for Full Self-Driving. It isn't fully automated, but it is still a stepping stone toward the type of automation that makes robotaxis possible.

So far, Tesla has not been granted the FSD licensing in China (maybe his politics are a problem after all!).

The aforementioned BYD is putting its “God’s Eye” driver assistance that does “navigation on autopilot.” It's basically equivalent to Tesla’s FSD and is BYD’s stepping stone toward robotaxi capability.

And last year, BYD and Uber teamed up on robotaxis. Over the next year, Uber wants to roll out 100,000 BYD robotaxis on its networks in Europe, Latin America, the Middle East, Australia, New Zealand, and Canada.

Here in the U.S., Google’s Waymo is expanding its robotaxi service to Austin, Texas, now, and heads to Atlanta next. Amazon’s Zoox robotaxi service is operating in Las Vegas.

Tesla, on the other hand, is still in the testing phase. It is falling behind.

Cheers,

Briton Ryle
Chief Investment Strategist
Outsider Club

X/Twitter: https://twitter.com/BritonRyle

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