Published by Jessica Weisman-Pitts
Posted on October 24, 2024
By Abhirup Roy
SAN FRANCISCO (Reuters) -Tesla’s stock jumped nearly 17% on Thursday, a day after it forecast surging car sales growth, reassuring investors that CEO Elon Musk was still looking to expand the core business of selling electric vehicles.
The world’s the most valuable automaker was set to add around $115 billion to its market capitalization if the gains hold, making up for a recent erosion on concerns that Musk was distracted by new projects like the recently unveiled robotaxi.
Musk has been pivoting Tesla into an artificial intelligence and robotics company from an EV market leader, but has yet failed to lay out a detailed business plan for his new focus.
Last quarter, he made bold company announcements about everything but cars – from driverless taxis to humanoid robots – leaving investors worried about dwindling margins already squeezed by lowered prices.
On a post-earnings call on Wednesday, though, Musk forecast 20%-30% sales growth next year, promising an affordable vehicle, and said efforts to slash production costs boosted margins.
He definitely seemed more passionate and invested in it this time,” said Jessica Caldwell, head of insights at car research and buying website Edmunds.
I feel like so much of Tesla is tied up in the future but we need to figure out how you get there. That’s what people needed to hear and they were a little bit better in providing those details than they have been in the past.
The results followed a flashy event this month to unveil a two-seater robotaxi dubbed Cybercab that will go into production in 2026 without a steering wheel or pedals and cost less than $30,000 to buy.
The event also featured a 20-seater driverless van and humanoid robots that danced for attendees.
Disappointed by the lack of some key details on how quickly Tesla could ramp up robotaxi production and clear inevitable regulatory hurdles, investors punished the company’s stock after that event.
Musk said on Wednesday Tesla aims to produce at least 2 million Cybercabs a year.
FSD played a part in the margin expansion, but I think the larger driver was reduced unit production costs… Over time, FSD should drive higher long-term margin expansion,” said Seth Goldstein, equity strategist at Morningstar.
Tesla posted $326 million in revenue for FSD used in Cybertruck and some features like Actually Smart Summon in the third quarter.
Not all investors are likely to be mollified by Tesla’s reassurances on Wednesday.
Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management and a prominent Tesla investor, said robotaxis and AI were not the fundamental businesses he wanted Musk to focus on.
“The days were good when Elon slept at the factory. He was there every day, working. Not going on Trump rallies of all things he could be doing,” Gerber said, referring to Musk’s well-publicized support of the Republican presidential candidate. Gerber made a short-lived run for the Tesla board last year.
Tesla shares are trading at 72.75 times its 12-month forward earnings estimates, much higher than the 5.94 times for legacy automaker Ford Motor and 30.79 for technology giant Microsoft.
At least seven brokerages raised their price target on the stock, with a median PT of $221, according to LSEG data.
Shares of EV makers Rivian and Lucid also rose 5.1% and 0.6%, respectively, while charging network operators such as EVgo, ChargePoint and Blink added between 1.5% and 4%.
ROBOTAXI REGULATORY HURDLES
Musk said on Thursday he expects Tesla vehicles to offer paid, driverless, ride-hailing services next year, doubling down on his promise made at the robotaxi event.
He said the company was already testing the operations with its employees in the San Francisco Bay Area.
Shares of ridehailing companies Uber fell 2.4% and Lyft slipped 1.4%.
But that plan is likely to face significant regulatory challenges.
Musk himself acknowledged on Wednesday the potential difficulties in getting approvals in California, saying “it’s not something we totally control,” but adding “I would be shocked if we don’t get approval next year.
For now, encouraging fundamentals of the core EV business are likely to keep the heat off Musk. Until next quarter.
Capturing sales in today’s challenging market and streamlining operations aren’t as sexy as self-driving cabs and dancing robots,” Edmunds’ Caldwell said. But they’re critical toward funding the company’s long-term vision for the future.
(Reporting by Abhirup Roy in San Francisco and Akash Sriram in Bengaluru; Editing by Sayantani Ghosh, Sam Holmes and Rashmi Aich)
