Professionals warn that Tesla stock sell-off after robotaxi event may be just the beginning

Hype basics.

Indeed, that’s the lesson Tesla ( TSLA ) investors should learn after the electric vehicle maker’s disappointing robotaxi event revealed a disconnect between the stock’s lofty valuation and reality.

The lack of details surrounding the launch plan and regulatory approval, combined with the lack of mention of a regular, affordable electric vehicle, has Wall Street wanting more.

CFRA analyst Garrett Nelson likened the event to “watching a movie with a lot of plot twists and special effects, and by the end, you come out of the movie scratching your head.”

It’s safe to say that analysts were “scratching their heads,” which probably wasn’t the reaction Musk was hoping for when pitching the Cybercab and Robovan concepts. Now, the big issue for investors is reevaluating Tesla’s stock price.

On Friday, more than $60 billion was wiped off Tesla’s valuation in a selloff, a sharp reversal from the stock’s recent momentum. Shares have risen more than 70% since Musk began promoting artificial intelligence in April. This rise brought Tesla’s market value to more than $760 billion before the robotaxi announcement, more than 14 times the market value of General Motors (GM) and nearly 18 times that of Ford (F).

Nelson, a longtime Tesla bull, warned that Friday’s decline “could be” just the beginning as Wall Street reassesses.

“There is a growing disconnect between the stock’s lofty valuation and the fact that Tesla’s earnings growth has hit a dead end,” Lee says, noting that the drivers of medium-term growth are “unclear.”

In a note to clients, Bernstein’s Tony Sacconaghi reiterated his belief that Tesla’s valuation is disconnected from fundamentals, and that writing a robotaxi event was “short on immediate deliverables or incremental revenue drivers.”

Sacconaghi estimated that Tesla’s automotive business is worth about $200 billion, suggesting that roughly $600 billion of its valuation rests on its less-proven projects, including full self-driving (FSD), robotaxis, and humanoid robots.

As my colleague Akiko Fujita wrote, robotaxis are an expensive venture, and may still be years away from becoming profitable.

The lack of near-term catalysts comes at an already difficult time for Tesla. Fading demand and growing competition for electric vehicles from the likes of General Motors have pressured sales and margins in recent quarters, a trend that professionals warn is unlikely to change anytime soon.

In the second quarter, the company reported operating margins of 6.3%, compared to 14.6% just two years ago.

Guggenheim’s Ron Jewedko, who sees fair value at about $153 per share, told me that investors, after the post-robot event, will “go back to focusing on the fundamentals of the business,” which he described as “pretty bad.”

The story continues

“A business trading at 100 times next year’s earnings, with little or no free cash flow, is really difficult to guarantee,” he added.

With its shares down 9% on Friday and down more than 17% in the past year, it’s safe to say Tesla has a lot to prove when it comes to fundamentals. Its next big test will be third-quarter earnings, scheduled after the bell on October 23.

Will there be more hype than fundamentals? Buckle up!

Sina Smith He is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSSmith. Advice on deals, mergers, activist positions, or anything else? Email [email protected].

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