To The Moon

Tesla’s ( $Tesla Motors(TSLA)$ ) highly anticipated “We, Robot” event, centred around the launch of its autonomous taxi service, has ignited significant buzz. CEO Elon Musk has claimed this to be Tesla’s most important event since the launch of the Model 3 in 2014, signalling a potential turning point for the company. But will Tesla soar past $300, or could the stock suffer a major setback?

Tesla: Beyond an Electric Car Company

Historically, Tesla has been viewed as an electric vehicle (EV) company, but its business scope extends far beyond that. The company is now deeply involved in several industries:

1. Energy Solutions: Tesla’s energy division focuses on solar panels, battery storage (Powerwall, Megapack), and grid solutions, with the potential to reshape energy consumption on a global scale.

2. AI and Autonomous Technology: Tesla’s self-driving technology, powered by its Dojo supercomputer, aims to make autonomous driving a reality. The company is one of the leaders in AI integration in vehicles, which feeds directly into the Robotaxi project.

3. Software and Services: Tesla's software suite, including Full Self-Driving (FSD) and over-the-air updates, positions it as a tech company capable of generating recurring revenue streams, much like software-as-a-service (SaaS) companies.

4. Manufacturing Innovation: Tesla’s advancements in battery technology, gigafactories, and vehicle production efficiency have placed it at the forefront of manufacturing innovation.

Given this multifaceted business, Tesla is not merely an automaker but a diversified technology company operating in critical future-facing industries.

Valuation Methodologies for Tesla

Wall Street analysts apply various valuation methodologies to assess Tesla’s stock, reflecting its unique combination of industries.

1. Automotive Valuation: Analysts using a traditional auto industry approach often value Tesla using price-to-earnings (P/E) ratios, comparing it to legacy carmakers. However, this methodology typically undervalues Tesla given its additional revenue streams beyond car sales.

2. Technology Valuation: Some analysts view Tesla as a tech company, using price-to-sales (P/S) ratios and enterprise value-to-EBITDA (EV/EBITDA) to account for its higher margins in software, autonomous driving, and energy solutions. This approach generally leads to higher valuations, akin to how Apple or Google are valued.

3. Sum-of-the-Parts (SOTP): This more nuanced approach breaks down Tesla’s business units, valuing its automotive, energy, AI, and software divisions separately. By applying different multiples to each segment, analysts can better capture the company’s true value.

4. Discounted Cash Flow (DCF): A few analysts take a DCF approach, attempting to model future cash flows from Tesla’s potential Robotaxi network, energy projects, and vehicle sales. This method can result in a very wide range of valuations, depending on assumptions about Tesla’s future market dominance.

Wall Street Valuation Results

• Bearish Outlook: Some analysts remain sceptical, with price targets in the $150–$200 range, citing concerns about market competition, regulatory hurdles, and Tesla’s high valuation relative to its current earnings.

• Bullish Outlook: On the other hand, bullish analysts see Tesla as a dominant player in AI and clean energy. The project price targets above $300, with some even predicting $400–$500 if the Robotaxi project proves to be a game-changer.

The Impact of the Robotaxi Launch

The upcoming Robotaxi event could be pivotal. If Tesla successfully showcases a viable autonomous taxi service, it could revolutionize the transport industry. The Robotaxi business model could generate high-margin recurring revenue, transforming Tesla’s valuation into something closer to tech platforms like Uber or Lyft—yet with far fewer operating costs due to automation.

• Bull Case: If Tesla can execute its Robotaxi vision effectively, it could open up a multi-billion dollar market and push the stock well past $300. The upside potential is enormous, as Robotaxis would not only dominate the transport sector but also feed into Tesla’s broader AI and software ecosystem, enhancing its recurring revenue model.

• Bear Case: However, if Tesla fails to deliver on its Robotaxi promise, the market may react negatively, sending the stock lower. Regulatory obstacles, safety concerns, or technical issues could delay the project’s success, and investors may choose to take profits before such uncertainties materialize. In this scenario, Tesla’s stock could experience a sharp decline, possibly below $200.

Conclusion: Profit Before the Event or Hold Long?

Investors must weigh the risk-reward balance carefully. Those who believe in Tesla’s long-term vision may hold through the event, betting on the transformational potential of the Robotaxi launch. Meanwhile, cautious investors might consider taking profits before the event, locking in gains in case of disappointment.

Given Tesla’s broader business, including its energy solutions, AI leadership, and software potential, the stock remains well-positioned for long-term growth. However, in the short term, the Robotaxi launch could lead to significant volatility. A successful event could propel Tesla past $300, but failure to meet lofty expectations might see the stock “hit the floor.”

For now, I remain cautiously bullish, with a target price of $320, but I would recommend closely monitoring the outcomes of the Robotaxi event and broader market reactions before making any final decisions.

@TigerWire