The Myth of Tesla: Just Another Automaker Without Autonomy
During this week’s earnings call, Tesla CEO Elon Musk said, “I recommend anyone who doesn’t believe that Tesla will solve vehicle autonomy should not hold Tesla stock.” Implicit in Musk’s statement is the notion that investing in Tesla purely as an electric vehicle (EV) company is unwise. This perspective is increasingly difficult to refute.
Even as the global leader in selling full battery EVs, Tesla is fundamentally an automaker. This reality is starkly highlighted by the company’s rapidly declining automotive gross margin. As capacity began exceeding demand, Tesla has adopted many of the strategies typical of legacy automakers.
In the second quarter of 2022, Tesla’s gross margin was an impressive 25.1%. By the second quarter of 2024, this margin had plummeted to 14.6%, a figure more in line with traditional automakers. The challenge for Tesla shareholders is that a company with a 14.6% gross margin should not command its current valuation of nearly $700 billion.
For context General Motors is valued at $53 billion, Mercedes-Benz AG is $74 billion, Toyota Motor Corporation, which sell 10 million vehicle annually, is valued at $300 billion - significantly lower than Tesla. Today, is there really anything significantly different between Tesla and most legacy automotive companies? The car business is not magically a better business just because Tesla chooses to only sell EVs.
Musk’s assertion is accurate: an EV automaker (even Tesla) cannot sustain the trillion-dollar valuation that many investors expect. Therefore, any investor holding Tesla stock must believe that Musk and Tesla will successfully launch a lucrative robotaxi business based on solving vehicle autonomy.
But what if Tesla does not solve autonomy? Or what if solving autonomy takes 5 or even 10 years? Moreover, what if Tesla isn’t the only company to launch robotaxis at scale because others solve autonomy as well?
Ultimately, investors need to weigh the potential of Tesla’s autonomous aspirations against the stark realities of being in the car business. Only time will tell if Tesla’s valuation can be justified, but one thing is clear: without autonomy, the road ahead may be far bumpier than anticipated.
Disclaimer
TaaSMaster, LLC is not a registered investment advisor or broker/dealer. All investment opinions expressed by TaaSMaster, LLC are from personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur.