Will Tesla drop another 60%? HSBC: There are three major "hard injuries" supporting the high valuation of Robotaxi

Tesla's car sales have encountered the largest decline in a decade, and its planned mass production of Robotaxi next year was initially highly anticipated, seen as a core strength supporting its high valuation. However, Robotaxi still faces three major "hard injuries," which undoubtedly cast a shadow over Tesla's high valuation.

HSBC's latest research report has poured cold water on Tesla's Robotaxi business, stating that Tesla's Robotaxi business faces three fundamental challenges: technology validation, changes in consumer habits, and proof of profitability. For investors, this means that Tesla may be overvalued, and HSBC maintains a target price of $120, indicating a potential decline of over 60% from the current stock price of $305.30.

The report points out that Tesla has failed to meet market expectations for EBIT for three consecutive quarters, marking the 11th time in 12 quarters that performance has fallen short of expectations. Management has warned that challenges will continue in the coming quarters, and whether the highly anticipated Robotaxi business can support the stock price remains a significant question.

Three Key Challenges for Robotaxi: Technology, Consumer Habits, and Profitability

The report indicates that the successful scaling of Tesla's Robotaxi business requires meeting three core prerequisites, each of which faces significant challenges:

1. Doubts about Technical Reliability: Tesla needs to prove that its pure vision (camera-only) solution is as robust and reliable as the multi-sensor fusion solutions commonly adopted in the industry.

According to HSBC's report, early signs from the Austin pilot are not optimistic. The report states that the Austin Robotaxi pilot has accumulated about 7,000 miles of driving distance, involving only a small number of vehicles. If calculated at an average trip length of 4 miles (similar to Waymo), this equates to each vehicle completing only 11 trips per day, less than half of Waymo's vehicles.

2. Difficulty in Changing Consumer Behavior: For Robotaxi to evolve from a public transport alternative to a widespread application, consumers need to abandon the notion of private car ownership, which the HSBC report describes as "a huge challenge." The report emphasizes that this "is not a small ask," involving deep-rooted changes in consumer habits.

3. Lack of Proof of Profitability: Tesla needs to demonstrate that its Robotaxi business can be profitable, which seems to be a point of contention within the company. The HSBC report notes that, for reference, Waymo raised about $6 billion in equity financing in 2024, indicating that it is still some distance from profitability.

Decline in Automotive Business Performance, Slow Progress in Autonomous Driving and Humanoid Robots

The report also points out that Tesla's automotive business faces multiple structural challenges: aging product lines, intensified market competition, damaged brand image, and consecutive quarters of performance falling short of market expectations. Tariffs and the end of U.S. electric vehicle incentives will further impact demand Despite Musk's repeated claims that autonomous driving and humanoid robots will ultimately make Tesla the most valuable company in the world, actual progress has been limited:

Slow progress on Robotaxi: Limited results from the Austin pilot project.

Redesign of Optimus humanoid robot: Musk stated that the Optimus design is being upgraded from version 2.5 to 3.0 (a completely new design), with a projected monthly production capacity of 100,000 units within five years—although the growth is rapid, it is far below the previously hinted scale of billions.

HSBC stated that the timing and scale of deliveries are their primary concerns.

Tesla's performance under pressure, HSBC maintains "Reduce" rating

HSBC has lowered its revenue expectations for Tesla for 2025-2027 by 1-3%, gross profit expectations by 3-7%, and operating income expectations significantly by 16-27%. Analysts pointed out that Tesla's automated vehicles face structural issues—an aging product lineup, intensified competition, and brand issues continue to drag down sales.

Notably, HSBC has lowered its operating profit forecasts for 2025 and 2026 by 27% and 23%, respectively, with the current forecast level about 66% lower than a year ago. The bank's outlook on Tesla's short-term profitability is increasingly pessimistic.

Based on the above factors, HSBC maintains a "Reduce" rating on Tesla, with a target price unchanged at $120, which is based on a 50:50 weighting of DCF and peer multiple valuation methods