Man shows car; shares fall

The net present value of Tesla’s future cash flows is 7.8 per cent lower today than yesterday.

That’s after the world’s 14th-largest automaker by volume hosted a product demonstration in Burbank, California. According to reports, concept products shown by the company were a two-seater car, a van, and a mannequin.

Tesla’s current CEO Elon Musk told the audience that the two-seater vehicle may be sold to taxi dispatch companies when it is made available for sale “before 2027”.

The present value of future cash flows for Uber, a taxi dispatch company, increased 8.1 per cent in response.

Musk said he expects Tesla cars to drive themselves in Texas and California by next year, a delay to the initial rollout target of August 2018. Whether the vehicles shown were operating fully autonomously on the closed course was not made clear. Whether Musk was talking about private cars or a robotaxi service was not made clear.

Fans of Tesla were underwhelmed. “That’s it?” asked Adam Jonas, a New York-based financial analyst who works for Morgan Stanley:

Heading into what might arguably have been the most highly anticipated product unveil in Tesla’s history, we had a number of expectations of what the market might learn that we felt were consequential to the direction and debate around the stock. Beyond the closed course test drives in autonomous ‘cybercabs’ and the latest Optimus, we had expected at least some incremental information around the ‘rate of change’ of the FSD system (i.e., quantifiable improvement of most recent FSD iterations in terms of miles without disengagement, etc), a thoughtful conveyance of a go-to-market strategy for supervised and unsupervised ridesharing service including economic inputs and TAM analysis, potential elaboration on the relationship between Tesla and xAI, or a possible discussion of ‘Master Plan 4.’ We were overall disappointed with the substance and detail of the presentation.

Alejandro Nuno, a New York-based financial analyst with investment bank UBS, described his ride in the Cybercab. “It was fine,” he said:

Vehicle is small but roomy for 2. However, the vehicle just went around the staged lot. Not very complex, so not much to read into. In fact, when our ride came to our designated stop it couldn’t find a spot (there wasn’t one available) so it just kept on driving on to the next station in a loop instead of waiting for a spot.

Jonas was disappointed that mannequins at the event — performing tasks such as filling plastic cups with beer and dancing in a gazebo — were closely chaperoned by humans. He said:

It is our understanding that these robots were not operating entirely autonomously - but relied on tele-ops (human intervention) so it was more a demonstration of degrees of freedom and agility. Overall, we did not pick up on anything new/novel about Optimus that clearly showed significant progress including little incremental detail from the company that the market was not previously aware of.

Nuno added:

When this future occurs remains unclear, and we believe further out than indicated. Meanwhile, we believe there were high expectations for Tesla to show the Model 2.5, which wasn’t shown (in line with our expectation). This is important since the new model is more likely a driver of 2025/26 estimates, in our view, than the products shown at the event.

Ryan Brinkman, a financial markets analyst from New York who works at JPMorgan, suggested that it’s better to travel by Robotaxi than arrive by Robotaxi:

Note that as TSLA shares rose +68% since April 22 (vs. the S&P 500 +15%), Bloomberg consensus for full year 2024 vehicles sold declined by -8% from 1.94 mn on April 22 to 1.79 mn today, EBIT by -13% from $8.4 bn to $7.3 bn, and free cash flow by -49% from $3.9 bn to $1.9 bn. The outlook for next year (or the year after that) did not improve either, with the expectation for 2025 vehicles sold declining -9% from 2.25 mn in April to 2.04 mn today, 2025 EBIT by -11% from $12.8 bn to $11.2 bn and 2025 free cash flow by -18% from $6.8 bn to $5.6 bn. The obvious candidate for the stock’s rise this time as the outlook for earnings deteriorated is investor anticipation for the Robotaxi Day

Having not much to say might be explained by Tesla having to follow through on a bad tweet, Brinkman added:

The first clue that investor enthusiasm may have been misplaced was the manner in which the event was announced in the first place – not in a press release from the company, not in a tweet from the company, not even in a tweet from Tesla CEO Elon Musk, but rather in a reply of Mr. Musk’s to another’s tweet on the X platform which appeared to at least somewhat back up his assertion that Reuters had falsely or wrongly reported earlier that day that it had reviewed internal Tesla emails documenting that work on an expected upcoming ~$25K “Model 2” program had been cancelled or indefinitely delayed. The individual claimed that the Model 2 was not necessarily cancelled, per se, but instead repurposed as a robotaxi, to which Mr. Musk responded that all would be unveiled at a (newly announced) August 8 Tesla Robotaxi Day. This exchange turned around the intra-day decline in Tesla shares on April 8 that was sparked by the Reuters article proclaiming the Model 2 had been cancelled but it perhaps should at least in retrospect not have been assigned by investors quite the same weight as a carefully curated corporate press release. A second suggestion that expectations should have been more tempered than they were may have been the announcement on July 15 that the Robotaxi Day had been moved from 8/8 to 10/10 given a needed design change. Taken together, there seemed at least the impression that a team may have been striving mightily to meet a challenging deadline that could have come at times as a surprise.

Tom Narayan, a financial markets analyst from New York who works at RBC Capital Markets, said fellow Tesla fans should know what to expect by now:

Investors we spoke to at the event thought the event was light of real numbers and timelines. These typically come at Tesla events. This one seemed focused on branding and marketing Tesla’s vision, rather than giving concrete numbers for us to model out. [ . . . ] Some investors also expected a teaser of the lower priced vehicle to be launched in H1/25 and we did not get it. Admittedly, this might have been underwhelming in the context of all the items we did see. We are still bullish on Tesla’s long term prospects and on robotaxis in general. We also think humanoid robots could be the next feature that analysts will start including in their numbers.

The net present value of Tesla’s future cash flows underpins a market value of $700bn because, at this point, why not?

Further reading:
— Police called to Willy Wonka event after refunds demanded (BBC)