Tesla Rally Stalls Amid Delay in Self-Driving Technology Release

Tesla Inc. shares’ breathless rally hit a wall on Thursday following a report that the company might delay a crucial event on which many investors have been pinning their hopes. Even before this news, arguing the case for the bulls was already becoming harder.

Previous Rally Supported by Revenue Growth:

The last time the company’s shares ran up like this, the rally was supported by revenue expanding at a double-digit clip. Things seem a lot gloomier now. The mood around electric cars is subdued; Tesla’s sales are shrinking, and its profits are sagging.

The big blow came on Thursday: Tesla plans to delay its keenly anticipated self-driving technology — the robotaxi — to October, starting in August. The news sent the stock plunging as much as 8.3%, set to wipe off more than $60 billion from its market capitalization.

Even before the news of the robotaxi delay, the gravity-defying rally made some nervous. The shares had soared 44% through Wednesday over an 11-day winning streak that’s the longest since June 2023. According to data compiled by Bloomberg, the stock was trading at 90 times forward earnings at its last close, a level last seen in early 2022.

Betting on AI Transformation:

The surge came as traders looked past Tesla’s EV credentials and bet that Elon Musk could transform it into an artificial intelligence powerhouse. The idea was that when Musk finally unveiled Tesla’s robotaxi, it would solidify its position as a leading AI player.

“Investors have been looking for that one breakthrough, real-world application of AI,” said Nicholas Colas, co-founder at DataTrek Research. “And now we have someone who has been working on AI for years saying, ‘Hey, I have got that killer application.’”

Challenging Financial Projections:

Yet, some numbers contradict the current buzz around the stock: earnings are set to drop by 21% in 2024, and revenue growth is seen decelerating to just 2.2%.

“This is clearly a faith-based stock now, not one whose valuations are in any way tied to current earnings power, and every day the stock rallies, the bar for the event just gets higher,” Colas added.

Comparisons to Meme Stocks and Market Position:

The furious rally, which prompted bond billionaire Bill Gross to compare Tesla to meme stocks this week, picked up steam after the company’s July 2 sales update suggested the worst EV slowdown may be over.

But the surge has since taken on a wilder momentum. Tesla is now the fifth-most expensive stock in the S&P 500 Index on a price-to-earnings basis, far surpassing the rest of the mega-cap technology cohort. The shares rose again on Thursday before the news of the delay sent them plunging.