Key Points
Continuing my “bull vs. bear” series of articles, looking at the bullish and bearish theses on popular stocks, we come to Tesla (NASDAQ: TSLA).
Few stocks divide investors as much as Tesla. The stock has been one of the past decade’s big winners, but its performance has lagged the market the past five years, and the stock is in the red to start this year.
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Let’s take a closer look at the bullish and bearish cases for the stock.
The bull case
An investment in Tesla isn’t about the company’s current position in the electric vehicle (EV) market but about the vision of its CEO, Elon Musk, and the future opportunities, including autonomous driving, robotaxis, and robotics. These are three areas of huge opportunity for the company moving forward.
At the heart of any Tesla thesis is autonomous driving. The company has taken a very different approach than its competitors, deciding to forgo lidar, sensors, and radar and instead solely relying on high-resolution cameras and a neural network.
Meanwhile, competitors rely on high-definition maps and geofenced areas that require painstaking mapping, while Tesla has sought to achieve general autonomy, enabling its vehicles to drive anywhere, including places they have never been before.
One big reason that Tesla is taking an approach is that it is much cheaper than fitting vehicles with expensive lidar and sensors. Tesla believes that the only way to really profitably scale a robotaxi business is to use a vision-only system, and that if it can crack this code, it should put it at a big advantage.
This makes sense, as it is estimated that Alphabet‘s Waymo vehicles currently cost over $100,000 to produce, while Tesla’s upcoming Cybercab is targeted to cost less than $30,000 to make. Combined with Tesla’s manufacturing capabilities, this would just greatly shift the economics highly in its favor.
Tesla is also pursuing another big opportunity in robotics with its Optimus humanoid robot. Musk has said its Optimus robots could become its largest business by far, calling it a $10 trillion revenue opportunity. It believes the robot will eventually be able to do everything from babysitting to factory work.
Image source: The Motley Fool.
The bear case
While the rationale behind Tesla’s vision-only strategy makes sense, its execution has been challenging. Tesla’s approach has run into numerous safety issues. Right now, it appears the company is still only operating a very small fleet in Austin, Texas, in a geofenced area, and that most of its vehicles in the city still have a safety monitor in the front seat.
According to the website Electrek, Tesla has filed 15 accident reports since its service was launched in Austin last June, and it only has one unsupervised vehicle on the road versus thousands for Waymo, as of last month. Meanwhile, its service in California is not considered a robotaxi service, and it does not have a license to operate one in the state.
If Tesla is unable to perfect its vision-only approach over the next couple of years, it will fall well behind in the robotaxi race. Waymo is already operating in multiple U.S. cities and is expanding aggressively. Meanwhile, there is no guarantee that its system will reach the safety levels to be able to expand its services beyond the more experimental stage. Musk has a long, documented history of overpromising and underdelivering in autonomous driving, so there is significant uncertainty.
Meanwhile, the company’s core EV business has been struggling. The end of the $7,500 federal EV task credit has been a headwind, while Musk did a lot of brand damage when he became the head of the Department of Government Efficiency (DOGE). Its Optimus robot, meanwhile, right now is more sizzle than substance.
The verdict
Trading at a forward P/E closing in on 200x, Tesla’s valuation is largely based on hopes and dreams. However, there is no guarantee the company will have any future success with its robotaxi or robotics ambitions. That keeps me on the sidelines.
You can find past “bull vs. bear” articles on Apple, Meta Platforms, Palantir Technologies, Micron Technology, and Nvidia by following the links.
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Geoffrey Seiler has positions in Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, Micron Technology, Nvidia, Palantir Technologies, and Tesla and is short shares of Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
