man shows car; Stocks fall

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The net present value of Tesla's future cash flows is 7.8 percent lower today than yesterday.

This came after the world's 14th largest automaker by volume held a product demonstration in Burbank, California. According to reports, the concept products shown by the company included a two-seater, a van and a mannequin.

Current Tesla CEO Elon Musk told the audience that the two-seat vehicle may be sold to taxi companies when it goes on sale “before 2027.”

The present value of future cash flows for Uber, a taxi company, rose 8.1 percent in response.

Musk said he expected Tesla cars to be self-driving in Texas and California by next year, a delay from the original August 2018 rollout target. It was not made clear whether the vehicles shown drove completely autonomously on the closed route. It was not made clear whether Musk was talking about private cars or a robotaxi service.

Tesla fans were disappointed. “This is it?” asked Adam Jonas, a New York-based financial analyst who works for Morgan Stanley:

As we prepared for what is arguably the most anticipated product launch in Tesla's history, we had a number of expectations about what the market might experience that we believe impacted the direction and debate surrounding the stock. Beyond the closed-course test drives in autonomous “Cybercabs” and the latest Optimus, we expected at least some incremental information about the “rate of change” of the FSD system (i.e. a quantifiable improvement in the latest FSD iterations in terms of miles traveled). Withdrawal, etc.), a thoughtful communication of a go-to-market strategy for supervised and unsupervised ride-hailing services including economic inputs and TAM analysis, possible elaboration of the relationship between Tesla and xAI, or a possible discussion of “Master Plan 4”. Overall, we were disappointed with the content and details of the presentation.

Alejandro Nuno, a New York-based financial analyst at investment bank UBS, described his ride in the cybercab. “It was fine,” he said:

The vehicle is small, but offers space for two people. However, the vehicle only drove around the parking lot. Not very complex, so not much to read. When our vehicle arrived at the designated stop, it actually couldn't find a spot (there weren't any available), so it simply continued on in a loop to the next station instead of waiting for a spot.

Jonas was disappointed that the mannequins at the event, who performed tasks such as filling plastic cups with beer and dancing in a pavilion, were closely supervised by humans. He said:

From what we understand, these robots did not work completely autonomously, but relied on teleoperation (human intervention), so it was more of a demonstration of degrees of freedom and agility. Overall, we didn't find anything new/novel about Optimus that clearly showed significant progress, including small incremental details about the company that were previously unknown to the market.

Nuno added:

When this future occurs remains unclear and we assume that it is further in the future than announced. Meanwhile, we are convinced that there were great expectations for Tesla to unveil the 2.5 model, which was not shown (which was what we expected). This is important as we believe the new model is more of a driver of 2025/26 estimates than the products shown at the event.

Ryan Brinkman, a New York-based financial market analyst who works at JPMorgan, said that traveling by robotaxi is better than arriving by robotaxi:

Note that TSLA shares are up +68% since April 22 (versus the S&P 500 +15%), the Bloomberg consensus for full-year 2024 vehicles sold is -8% from 1.94 million on April 22 to 1.79 million today, EBIT down -13% from $8.4 billion to $7.3 billion and free cash flow down -49% from $3.9 billion to $1.9 billion. The outlook for next year (or the year after) hasn't improved either, with expectations for vehicles sold in 2025 falling -9% from 2.25 million in April to 2.04 million today, that 2025 EBIT down -11% from $12.8 billion to $11.2 billion and 2025 free cash flow down -18% from $6.8 billion to $5.6 billion. The obvious candidate for the stock to rise this time as the earnings outlook deteriorates is investor anticipation of Robotaxi Day

Brinkman added:

The first clue that investor enthusiasm may have been misplaced was the way the event was announced in the first place — not in a company press release, not in a company tweet, not even in a tweet from Elon , CEO of Tesla Musk, but rather in a response from Mr. Musk to someone else's tweet on the platform The expected upcoming roughly $25,000 “Model 2” program has been canceled or postponed indefinitely. The person claimed that the Model 2 had not necessarily been discontinued per se, but had instead been repurposed as a robotaxi, to which Mr. Musk responded that everything would be revealed at a (newly announced) Tesla Robotaxi Day on August 8th. That exchange reversed Tesla shares' April 8 daily decline that was sparked by the Reuters article saying the Model 2 had been discontinued, but perhaps investors didn't give it quite the same weight, at least in retrospect should be given a curated corporate press release like a cautious model. A second indication that expectations were more muted than they were may have been the announcement on July 15th that Robotaxi Day would be moving from August 8th due to a necessary design change. on October 10th was postponed. All in all, it at least seemed like a team had made a great effort to meet a demanding deadline that could sometimes have come as a surprise.

Tom Narayan, a New York-based financial market analyst working at RBC Capital Markets, said other Tesla fans should know what to expect by now:

The investors we spoke to at the event were of the opinion that the event was not about real numbers and timelines. These usually take place at Tesla events. This seemed to focus on branding and marketing Tesla's vision rather than providing concrete numbers that we could model. ( . . . ) Some investors also expected a taste of the lower-priced vehicle to hit the market in the first half of 2025, but we didn't get it. Admittedly, this may have been disappointing given all the things we saw. We're still optimistic about Tesla's long-term prospects and robotaxis in general. We also believe that humanoid robots could be the next feature that analysts will factor into their numbers.

The net present value of Tesla's future cash flows supports a market value of $700 billion, because why not?

Further reading:
– Police called to Willy Wonka event after refunds demanded (BBC)