Tesla’s Struggle to Justify Valuation Amid Self-Driving Dreams


Elon Musk’s call for investor trust in Tesla Inc (NASDAQ:TSLA). hinges on its ability to deliver self-driving cars, yet the stock’s valuation already reflects this optimism and more. Despite trading at a considerable premium compared to AI pioneers like Nvidia Corp. (NASDAQ:NVDA) and Microsoft Corp. (NASDAQ:MSFT), Tesla faces plummeting earnings estimates amid slowing electric vehicle demand.

David Mazza, CEO of Roundhill Investments, highlights the challenge of sustaining Tesla’s narrative beyond EVs amid declining core business growth, leading to a detachment between the stock’s multiple and reality.

As of Thursday’s close, Tesla’s stock trades at 63 times forward earnings, significantly higher than Nvidia’s 33 and Microsoft’s 30. With analysts revising down profit expectations, Tesla’s valuation continues to climb.

While Tesla recently witnessed a surge in its stock following Musk’s optimistic remarks on autonomous vehicles and AI during the earnings call, investors remain perplexed. Fully self-driving cars, still years away from widespread adoption, pose a daunting challenge amidst weak EV demand and strategic shifts away from once-prominent projects like the charging network.

Moreover, Tesla’s endeavors in the autonomous vehicle space lack concrete evidence of success compared to competitors like General Motors Co.’s Cruise and Ford Motor Co. and Volkswagen AG’s Argo AI, raising doubts about its ability to dominate the market.

Analyst Toni Sacconaghi of Sanford C Bernstein underscores the uncertainty surrounding Tesla’s self-driving ambitions, citing mixed reviews and everyday shortfalls in its driver assistance software.

In contrast, Nvidia and Microsoft have established themselves as AI leaders. Nvidia’s dominance in AI-focused chips and Microsoft’s investments in OpenAI underscore their credibility in the field.

Tesla’s staggering market capitalization, surpassing traditional auto giants, underscores investor faith in Musk’s vision. However, with Evercore ISI’s Chris McNally suggesting that less than half of Tesla’s valuation is based on its auto business, and DataTrek Research’s Nicholas Colas pointing out the stock’s heavy reliance on future growth potential, the discrepancy raises concerns.

As competition intensifies in the self-driving arena, Tesla faces mounting odds against justifying its rich valuation. Yet, the enduring faith in Musk’s visionary leadership continues to underpin Tesla’s status as a “faith-based stock,” according to Steve Sosnick, chief strategist at Interactive Brokers.

In today’s tech news, Apple Inc.’s (NASDAQ:AAPL) record-breaking buyback announcement and ongoing developments in social media regulation underscore the broader tech landscape’s dynamism and challenges.

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