Tesla (NASDAQ:TSLA) stock has performed poorly over the past 12 months due to several factors, ranging from strong competition in the EV space to CEO Elon Musk’s distractions from the company, all exacerbated by valuation concerns. However, I believe two short-term catalysts could indicate that Tesla has hit bottom, so I am bullish on the company’s turnaround prospects today.
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In this article, I will detail these catalysts and explain why they may justify the company’s current premium valuation.
The Robotaxi Potential
During Tesla’s shareholder meeting, Elon Musk elaborated on its Robotaxi plans, providing significant insights for Tesla stock investors. Musk explained Tesla’s business model for the Robotaxi service, comparing it to a blend of Airbnb (NASDAQ:ABNB) and Uber (NYSE:UBER). This model consists of two main components:
- Tesla will own and operate a fleet of cars. When a user reserves a ride in one of these vehicles, the payment goes directly to Tesla.
- Additionally, a significant number of robotaxis will be owned by private individuals. These privately-owned vehicles will also be available for reservation, and the payments for these rides will go to the vehicle owners. This setup allows for flexibility, as owners might offer rides for free to family members or friends.
This dual-ownership model aims to maximize the availability and utilization of Robotaxis, leveraging both Tesla’s fleet and privately owned vehicles to meet demand.
One of the primary challenges Tesla faces is overcoming regulatory hurdles to get its self-driving cars on the roads globally. There are already a few states in the U.S. with autonomous vehicle laws and driverless cars operating in cities like San Francisco and Las Vegas. These existing autonomous cars are paving the way for broader regulatory approval in the U.S., which Tesla believes will facilitate its entry into these markets.
Elon Musk has noted that it is beneficial for Tesla that other autonomous car companies are cutting through the regulatory jungle. These companies’ operations and data collection in challenging areas help Tesla by providing insights and easing the path for its vehicles. Interestingly, unlike in other areas where Tesla prefers to lead, Tesla is comfortable not being the first mover in this scenario. Tesla remains confident that its technology will be superior once fully operational.
On August 8, Tesla will unveil its Robotaxi service. According to Wedbush’s Dan Ives, a long-term Tesla bull, this day will mark a historical event as the company reveals its broader strategy. Ives believes that the market will witness the execution of this strategy alongside the launch of a sub-$30,000 vehicle. He suggests that the bottom for Tesla is in and argues that betting against Elon Musk is the wrong call, considering Tesla’s extensive installed base and deep involvement in AI.
From my perspective, valuing Tesla solely as an electric vehicle manufacturer doesn’t fully capture its worth, especially given its valuation, which far surpasses that of traditional car companies. The prospect of the Robotaxi service is unprecedented. This disruptive technology, though intangible, stands out as a compelling reason for investors to find Tesla’s premium valuation of 74x forward price-to-earnings (P/E) ratio appealing.
Tesla’s Leader Is Re-Engaged
In recent years, concerns have arisen about Elon Musk’s ability to focus on Tesla, given his involvement in multiple ventures such as SpaceX, Neuralink, and others. Critics argue that Tesla requires a dedicated leader, and Musk’s divided attention could potentially harm the company’s success.
However, Elon Musk is deeply intertwined with Tesla, embodying its vision and driving innovation. Despite his busy schedule, recent developments indicate a renewed focus on Tesla. This “old school” Musk appears revitalized, especially in light of recent votes of confidence from shareholders.
During the recent Tesla shareholder meeting, shareholders re-approved CEO Elon Musk’s $56 billion compensation plan, highlighting their strong support for Musk’s leadership at the company. However, the vote still requires formal legal approval, and its certainty remains uncertain, potentially leading to months of litigation. Earlier this year, the compensation plan encountered challenges in Delaware, where it was described as “deeply flawed.”
The uncertainty surrounding the approval of this plan had a notable impact on Tesla’s stock, reflecting concerns about the company’s leadership. Now, with a clearer indication that Musk will continue to lead Tesla with increased focus and energy, Morgan Stanley (NYSE:MS) analyst Adam Jonas believes, and I concur, that there is potential for the company to unify strategies across Elon Musk’s ventures, including xAI and the social media platform X.
Is TSLA Stock a Buy, According to Analysts?
The consensus on Wall Street regarding TSLA reveals analysts are sitting on the fence with a Hold rating. Out of 33 analysts, 10 are Bullish, nine are bearish, and 14 are neutral. The average Tesla stock price target is $176.96, indicating a potential downside of 3.3%.
The Bottom Line
Although bearish momentum still prevails over TSLA due to its potentially stretched valuation based on ambitious future projections, I believe that the unveiling of the Robotaxi execution plans could justify TSLA’s valuation. Additionally, resolving concerns over Elon Musk’s leadership may mark a transition from bearish to bullish momentum for the world’s largest EV company.
