Esha Dey and Mia Gindis
Thu, Jul 11, 20245 min read
In this article:
(Bloomberg) — Tesla Inc. shares’ breathless rally hit a wall on Thursday on a report that the company might delay a crucial event that many investors have been pinning their hopes on. Yet even before that, it was already becoming harder to argue the case for the bulls.
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The last time the company’s shares ran up like this, the rally was supported by revenue expanding at a double-digit clip. Things seem a lot gloomier now. The mood around electric cars is subdued, Tesla’s sales are shrinking and its profits are sagging.
And then came the big blow on Thursday: Tesla is planning to delay its keenly anticipated self-driving technology — the robotaxi — to October, from August. The news sent the stock plunging as much as 8.3%, set to wipe off more than $60 billion from its market capitalization.
Even before the news of the robotaxi delay, the gravity-defying rally was making some nervous. The shares had soared 44% through Wednesday over an 11-day winning streak that’s the longest since June 2023. The stock was trading at 90 times forward earnings at its last close, a level that was last seen in early 2022, according to data compiled by Bloomberg.
The surge came as traders looked past Tesla’s EV credentials and bet that Elon Musk can transform it into an artificial intelligence powerhouse. The idea was that when Musk finally unveils Tesla’s robotaxi, it will solidify the company’s position as a leading AI player.
“Investors have been looking for that one breakthrough, real-world application of AI,” said Nicholas Colas, co-founder at DataTrek Research. “And now we have someone who has been working on AI for years saying ‘hey, I have got that killer application.’”
Yet, some numbers fly in the face of the current buzz around the stock: earnings are set to drop by 21% in 2024 and revenue growth is seen decelerating to just 2.2%.
“This is clearly a faith-based stock now, not one whose valuations are in any way tied to current earnings power, and every day the stock rallies the bar for the event just gets higher,” Colas added.
The frenetic rally, which prompted bond billionaire Bill Gross this week to compare Tesla to meme stocks, picked up steam after the company’s July 2 sales update suggested the worst of the EV slowdown may be over. But the surge has since taken on a wilder momentum.
