The sell-off in Tesla shares after the Robotaxi event could be just the beginning, experts warn

Basics instead of hype.

That is indeed the lesson for Tesla investors (TSLA) after the electric vehicle maker's disappointing Robotaxi incident last week exposed a disconnect between the stock's lofty valuation and reality.

The lack of details on the rollout plan and regulatory approval, as well as the lack of mention of a cheaper regular electric vehicle, left Wall Street wanting more.

CFRA analyst Garrett Nelson likened the event to “watching a movie with lots of twists and special effects and you end up scratching your head.”

It's safe to say that the “head-shaking” from analysts probably wasn't the reaction Musk was hoping for when he introduced the Cybercab and Robovan concepts. The big problem for investors now is reassessing Tesla's share price.

A sell-off on Friday shaved more than $60 billion off Tesla's valuation, marking a significant reversal from the stock's recent momentum. Shares had risen over 70% since Musk began touting AI in April. The rally brought Tesla's market value to over $760 billion before the robotaxis announcement – more than 14 times the market cap of GM (GM) and nearly 18 times the market cap of Ford (F).

Nelson, a long-time Tesla bull, warned that Friday's decline could be “just the beginning” of a reassessment on Wall Street.

“There is a growing disconnect between the stock's high valuation and the reality that Tesla's earnings growth is reaching a limit,” he tells me, pointing out that medium-term growth drivers are “unclear.”

In a note to clients, Bernstein's Toni Sacconaghi reiterated his belief that Tesla's valuation is unrelated to fundamentals and wrote that the Robotaxi event represented “no immediate results or additional revenue drivers.”

Sacconaghi estimates that Tesla's automotive business is worth around $200 billion, suggesting that nearly $600 billion of its valuation depends on its less proven ventures, including full self-driving (FSD), robotaxis and humanoid robots.

As my colleague Akiko Fujita wrote, robotaxis are an expensive endeavor and may take years to become profitable.

The lack of near-term catalysts comes at an already difficult time for Tesla. Weak demand and increasing competition from electric vehicles from companies like GM have put pressure on sales and margins in recent quarters, and experts warn that trend isn't likely to change anytime soon.

In the second quarter, the company reported an operating margin of 6.3%, compared to 14.6% just two years earlier.

Guggenheim's Ron Jewsikow, who sees a fair value of around $153 per share, told me that after the Robotaxi event, investors will “refocus on the fundamentals of the business,” which he described as “pretty thin.” .

The story continues

“A company that trades at 100 times next year's earnings and has little to no free cash flow is really difficult to underwrite,” he added.

Tesla shares rebounded somewhat in premarket trading on Monday, rising about 2%. But considering shares fell 9% on Friday and have fallen over 17% in the past year, it's safe to say Tesla still has a lot to prove in terms of fundamentals. The next big test will be third-quarter earnings, which are expected after the market closes on October 23rd.

Will there be more hype than fundamentals? Buckle up!

Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email [email protected].

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