EQUITIES 5 minutes to read

Trusting Tesla, or not...

Peter Garnry

Head of Equity Strategy

Summary:  If Elon Musk is to be believed, the world's motorways will soon host fleets of robo-taxis built by Tesla. But many analysts are sceptical of the flamboyant CEO's ambitions and grandiose announcements, and this shows in the share price.


Tesla held its Tesla Autonomy Investor Day yesterday where the company put forth its vision for the future of self-driving technology enabling fleets of robo-taxis. Overall, sell-side analysts failed to be overly excited, citing previous big announcements and subsequent delays.

Co-founder and CEO Elon Musk did not fail to entertain, boasting Tesla’s achievement of having designed a better chip for self-driving technology than that which Nvidia is currently offering. Nvidia has subsequently refuted those claims saying Tesla showed performance on a whole system and that Nvidia chips in the same system would still perform better. 

Based on its new hardware and expected software updates, Tesla expects fully self-driving cars within the next year. This target seems extremely aggressive given that it requires a public regulatory framework which is basically out of the hands of Tesla. But even more importantly Elon Musk is likely exaggerating how mature the self-driving technology is. Waymo, the Alphabet subsidiary on self-driving technology and perceived as the leader in the industry, has recently said that autonomy level five is maybe two decades into the future.

Tesla aims to divert attention

The Autonomy Investor Day feels as if Tesla is attempting to divert attention away from its troubles in scaling up production and recent disputes with Panasonic about expanding battery production capacity. Sell-side analysts have been lowering their price targets for Tesla shares and consensus opinion is more divided than ever with 13 buy, 8 hold and 15 sell ratings. 

Investors are increasingly worried about demand for Tesla’s cars, driven by the recent miss on Q1 deliveries that raised many questions. Key for Tesla is its credit rating as the company relies on debt financing for its operations. It therefore seems natural that Tesla now puts forth a grand vision to hold up the market value and keep the momentum going. 

As the chart below shows, Tesla’s journey the past two years has been extremely volatile. Elon Musk’s comment “Between now and when the robo-taxis are fully deployed throughout the world, the sensible thing for us is to maximize the number of autonomous units made and drive the company toward cash-flow neutral. Once the robo-taxi fleet is active, I would expect to be extremely cash-flow positive”, should make investors nervous. The strategic shifts lately in Model 3 distribution and now targets for profitability highlights a company with leadership as volatile as its share price.
Source: Saxo Bank
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)