It’s time to outline where I stand on the Tesla bull and bear debate, and I’ll cut to the chase. I’m a bull, but I believe Tesla is likely to go sideways or even down before ultimately moving higher.
This argument is based on two seemingly contradictory factors that combine to urge near-term cautiousness but long-term optimism.
- Tesla’s core value-enhancing catalysts, namely robotaxi and Optimus, will generate significant recurring revenue.
- Tesla has been consistently over-optimistic about timelines and “milestones” for the robotaxi rollout in particular, such that the narrative around the stock is now dominated by minute-by-minute monitoring of the rollout, which is clearly going to ramp more slowly than many expected.
A question of narrative
Unfortunately, the second point has led to Tesla investors following the robotaxi rollout on a daily basis. A few cars are added to the unsupervised robotaxi fleet and it’s seen as a precursor to a massive ramp coming imminently. A few Cybercabs are seen parked in a lot – Tesla is about to launch tomorrow! Tesla is planning a major rollout on the fourth of July!
While it’s easy to poke fun at this kind of narrative, not least as much of it is driven by the insatiable demand to generate clicks. Yet, there is an investment logic behind it. Simply put, more earnings and cash flow from robotaxi upfront mean more net present value for the stock than later earnings and cash flow.
Why the stock sold off after the recent results
In a nutshell, that’s why the stock sold off heavily after the second quarter earnings report. Management’s commentary led investors to push out expectations for robotaxi revenue, while near-term margins are coming under pressure partly due to increased research & development costs related to investment in robotaxi and Optimus. In other words, investors acted rationally and priced in lower long-term value for the stock.
Perceptions matter in investing, and unfortunately, Elon Musk’s previous estimates (which many investors were using to price in the timing of robotaxi revenue) on the rollout have proved to be overly optimistic.
Why I'm bullish on Tesla stock
All of that said, the reality is Tesla is developing its robotaxi business. It’s just developing it in a different way than many investors previously expected. Forgive the chess analogy, but this is more like Karpov than Kasparov. Instead of gaining a tangible advantage early on and building on it with a series of dynamic developments like prime Kasparov, Tesla is slowly and patiently winning the positional battle before the winning tactics inevitably start flowing.
These positional advantages include regulatory advancements on Cybercab, using early versions of v15 full self-driving software (FSD) in the robotaxi fleet, racking up double-digit growth in a week in unsupervised robotaxi miles with a limited fleet, ensuring no notable accidents/incidents with unsupervised robotaxi, and growing adoption of FSD to encourage awareness of the benefits of robotaxi.
When Tesla has finally completed all the architectural improvements necessary for v15 FSD, then it can scale the robotaxi rollout.
Robotaxi will happen, just not in the timeline investors previously expected. Still, that won’t unduly trouble long-term investors, and anyway, not that expectations should have been reset, Tesla could be about to start underpromising and outperforming on the robotaxi rollout. Here’s hoping.
It’s time to outline where I stand on the Tesla bull and bear debate, and I’ll cut to the chase. I’m a bull, but I believe Tesla is likely to go sideways or even down before ultimately moving higher.
This argument is based on two seemingly contradictory factors that combine to urge near-term cautiousness but long-term optimism.
- Tesla’s core value-enhancing catalysts, namely robotaxi and Optimus, will generate significant recurring revenue.
- Tesla has been consistently over-optimistic about timelines and “milestones” for the robotaxi rollout in particular, such that the narrative around the stock is now dominated by minute-by-minute monitoring of the rollout, which is clearly going to ramp more slowly than many expected.
A question of narrative for Tesla
Unfortunately, the second point has led to Tesla investors following the robotaxi rollout on a daily basis. A few cars are added to the unsupervised robotaxi fleet and it’s seen as a precursor to a massive ramp coming imminently. A few Cybercabs are seen parked in a lot – Tesla is about to launch tomorrow! Tesla is planning a major rollout on the fourth of July!
While it’s easy to poke fun at this kind of narrative, not least as much of it is driven by the insatiable demand to generate clicks. Yet, there is an investment logic behind it. Simply put, more earnings and cash flow from robotaxi upfront mean more net present value for the stock than later earnings and cash flow.
Why the stock sold off after the recent results
In a nutshell, that’s why the stock sold off heavily after the second quarter earnings report. Management’s commentary led investors to push out expectations for robotaxi revenue, while near-term margins are coming under pressure partly due to increased research & development costs related to investment in robotaxi and Optimus. In other words, investors acted rationally and priced in lower long-term value for the stock.
Perceptions matter in investing, and unfortunately, Elon Musk’s previous estimates (which many investors were using to price in the timing of robotaxi revenue) on the rollout have proved to be overly optimistic.
Why I'm bullish on Tesla stock
All of that said, the reality is Tesla is developing its robotaxi business. It’s just developing it in a different way than many investors previously expected. Forgive the chess analogy, but this is more like Karpov than Kasparov. Instead of gaining a tangible advantage early on and building on it with a series of dynamic developments like prime Kasparov, Tesla is slowly and patiently winning the positional battle before the winning tactics inevitably start flowing.
These positional advantages include regulatory advancements on Cybercab, using early versions of v15 full self-driving software (FSD) in the robotaxi fleet, racking up double-digit growth in a week in unsupervised robotaxi miles with a limited fleet, ensuring no notable accidents/incidents with unsupervised robotaxi, and growing adoption of FSD to encourage awareness of the benefits of robotaxi.
When Tesla has finally completed all the architectural improvements necessary for v15 FSD, then it can scale the robotaxi rollout.
Robotaxi will happen, just not in the timeline investors previously expected. Still, that won’t unduly trouble long-term investors, and anyway, not that expectations should have been reset, Tesla could be about to start underpromising and outperforming on the robotaxi rollout. Here’s hoping.
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