Bull-Bear Debate: Can Tesla's Autonomous Driving and Robotics Support a Trillion-Dollar Valuation?

Tesla (TSLA.US) stock price experienced volatile fluctuations after the release of its second-quarter financial report. The report showed a significant decline in revenue amid intensified competition and an uncertain regulatory environment, with profit margins also under pressure. The stock price of the electric vehicle pioneer dropped over 9% after announcing a 12% year-on-year revenue decline and a 42% drop in operating profit. During the earnings call, Elon Musk warned of the adverse factors faced and stated that robotics and autonomous driving features would be the focus of the company's future work.

Tesla's stock is currently trading at $316, which is approximately a 47% increase compared to the past year, although its stock price has fallen 22% year-to-date. The current price is well above its 52-week low of $182 but still far below its 52-week high of $488.54 reached in the past year. This volatility reflects the market's weighing of uncertainty regarding Tesla's recent challenges against its long-term potential, making it the worst-performing stock among the "seven tech giants" so far this year and the only stock projected to be in the red by 2025.

Gradient Investments analyst Lisa Schreiber stated, "I think we are in a transitional phase, so this is a very critical time for Tesla right now."

The earnings call raised further concerns, with CEO Elon Musk warning that there would be "a few tough quarters" ahead, especially due to the upcoming change in the U.S. electric vehicle tax credit policy, which will eliminate the $7,500 incentive in September. This regulatory change could further pressure Tesla's already declining delivery numbers, which fell 14% year-on-year in the second quarter, marking the largest drop in a decade. Meanwhile, bullish investors remain convinced that Tesla's current predicament is merely a growing pain on its path to achieving a future of autonomous driving, expecting that robotaxi services will gradually expand and a lower-cost model will be launched in the second half of 2025.

This means that what makes Tesla a highly controversial investment choice is not only its current performance but also its ambitious vision for autonomous vehicles, artificial intelligence, and robotics, which far exceeds the traditional automotive manufacturing scope. Investors find themselves caught in the contradiction between Tesla's high valuation and the potential it possesses through technologies that have yet to be realized on a large scale, which are expected to have transformative impacts on transportation and energy sectors.

Tesla remains an innovator, with its product line including robotics and artificial intelligence technologies. However, its electric vehicle business is sharply declining due to intensified competition and rising opposition to Musk's political stance. Additionally, the expiration of the $7,500 federal subsidy for electric vehicles has also brought setbacks Schreiber said, "When we consider Tesla's valuation, investors are unclear on how to assess it. It is electric, but it is also not a company that has already ventured into autonomous taxi and robotics businesses. So we encounter difficulties in this regard."

Schreiber's view is that Tesla's stock behaves more like a hot tech company trying to challenge giants like NVIDIA (NVDA.US). Its stock price is 161 times the expected future earnings ratio. (In contrast, the more robustly growing NVIDIA has a price-to-earnings ratio of about 55 times.) The pure automotive manufacturer Ford (F.US) has a price-to-earnings ratio of 9.6 times.

Meanwhile, some believe that Tesla is a company that is still unclear about its future direction. The innovative initiatives in the field of autonomous driving are worth noting, but this waiting may make even the most patient investors feel anxious.

Schreiber stated, "For Tesla, we need to be a bit cautious." He pointed out that Musk has always made grand promises but often delays product launch timelines.

For example, this autonomous taxi was launched in Austin, Texas, in June this year. William Blair analysts Jed Dorsheimer and Mark Shooter believe that Tesla's stock rating is "hold," noting that competitor Waymo, under Google (GOOGL.US), has "led for six years." The strategists wrote, "We believe the auxiliary training phase will soon end, and the rollout of autonomous taxis will exceed expectations. However, perhaps by the end of this year, this achievement will not benefit half of Americans."

During Tesla's earnings call, Musk also discussed the humanoid robot Optimus, artificial intelligence, and their integration into the vehicle fleet, stating that the company's cars "are essentially four-wheeled robots."

He said, "Optimus is a robot with arms and legs. Therefore, the principles applicable to optimizing automotive AI reasoning also apply to Optimus, as they are essentially both robots, just in different forms."

If Musk and his team can achieve their goals, investors like Schreiber are likely to be among the first to cheer and celebrate, but for now, they choose to wait and see.

She said, "I think we need to be a bit cautious in this regard. For us to become buyers here, we need to see some actual results first and need to see some tangible progress." More Debates Between Wall Street Bulls and Bears

Bears believe that Tesla's valuation is completely disconnected from the company's deteriorating financial condition. They point out concerning phenomena such as the significant shrinkage of the company's free cash flow (down 89% year-on-year, leaving only $146 million) and the decline in profit margins (operating profit margin dropped to 4.1%, down from 6.3% a year ago), all of which prove that Tesla's high valuation is unreasonable.

Critics also note that Tesla's two main business segments are currently both on a downward trend, with automotive revenue declining by 16%, while the previously growing energy business has also seen a 7% drop in revenue. With regulatory subsidies about to be eliminated and intensified competition in key markets such as China and Europe, bears believe that Tesla is primarily a struggling automotive company, and its unproven AI and robotics technology development plans cannot support its trillion-dollar market value.

On the bullish side, they counter that the current financial data does not fully reflect Tesla's true potential, and they are more focused on the company's leading position in artificial intelligence and autonomous driving technology. They argue that the poor performance in the current quarter is merely a temporary setback during a transition period and point out future positive factors such as the launch of more affordable models in 2025 and the expansion of the autonomous taxi business.

Bulls also highlight Tesla's substantial profits and continuous improvement in profit margins in the energy generation and storage business (GAAP gross margin rose from 16.3% in the first quarter to 17.2%) as signs that the company may have emerged from its difficulties. For bulls, Tesla represents a long-term investment in autonomy, artificial intelligence, and robotics technology, while the current automotive business is just the foundation for this larger technological transformation.

Jonathan Weber gives a "Sell" rating: "Tesla's quarterly results show a significant decline in its business, highlighting ongoing pressure on profit margins and cash flow. The company's operating cash flow is $2.54 billion, down a third from a year ago, just slightly above its $2.39 billion capital expenditures, resulting in $146 million of free cash flow. This figure is less than $600 million on an annual basis, leading to a free cash flow multiple of over 1500 times."

Eugenio Catone gives a "Strong Sell" rating: "The issue is not just with revenue, but more importantly, the sharp decline in profitability. The operating profit margin has dropped 219 basis points year-on-year to 4.10%, indicating a lack of competitive advantage. Tesla is no longer as attractive; from a company with profit margins far exceeding its peers, it has now become just another automotive company that must strive to achieve low single-digit profit margins."

The Techie gives a "Strong Buy" rating: "I view the next few quarters as a phase of hard work, the effort required before seeing returns. This process won't be pretty, but it's a critical moment for laying the foundation. In my view, while the remainder of this year will be challenging, from an investor's perspective, market sentiment has bottomed out, marking the beginning of long-term positioning. We now clearly see that Tesla is actually an artificial intelligence and robotics technology platform, so what you are buying is not just what is visible at the moment, but the company's potential Oliver Rodzianko also gave a "strong buy" rating: "Brave investors who understand that breaking conventions and implementing them with exceptional skill often demonstrate outstanding quality should include Tesla stock in their portfolios. Currently, the brand faces risks, but if Musk can adjust his political stance to be more equitable, I believe Tesla could exhibit strong intrinsic appeal in the mass market. My target price may seem somewhat aggressive; I admit this is an optimistic forecast, and certain aspects may adversely affect Tesla's operations."