Tesla shares closed higher Tuesday, extending their impressive autumn rally, as a pair of Wall Street analysts weighed in on the group's robotaxi event set for later this week in Los Angeles.
Tesla ( TSLA ) CEO Elon Musk called Thursday's robotaxi unveiling, dubbed "We, Robot," as the biggest event for the group since the Model 3 project launched in 2014, adding that it would be "one for the history books," in a message on his X social media platform last month.
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Musk, who has pivoted the group from its traditional carmaking roots to focus on the potential in autonomous driving, robotics and AI-related technologies, will need to both capture the public's imagination with the highly-choreograph launch event while convincing investors to endure weakening profits and slowing sales from its legacy automotive business.
Slumping EV prices, intensifying competition in key Asia markets and a pullback in consumer demand have all combined to narrow Tesla's profit margins and blunt its near-term outlook, as well as its earlier forecasts of 50% annual growth in overall deliveries.
That had a big effect on the shares, which fell nearly 43% over the first four months of the year, shedding more than $320 billion in market value, as Musk outlined his plans to redirect the company's focus.
Tesla stock rebounds
Since then, however, his efforts have won significant shareholder support, rising nearly 72% from their late-April nadir as quarterly delivery figures improved and Musk repeated his conviction for the profit potential of autonomous driving technologies.
"I recommend anyone who doesn't believe that Tesla would solve vehicle autonomy should not hold Tesla stock," Musk told investors following the group's second-quarter earnings report in July. "They should sell their Tesla stock. If you believe Tesla will solve autonomy, you should buy Tesla stock. And all these other questions are in the noise."
Musk told investors last month that Tesla's 'Full-Self-Driving' advanced driver-assistance software would be available in Europe and China next year, pending final regulatory approval and following a series of regulatory and technical delays.
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Thursday's robotaxi event, which will take place at Warner Bros. Discovery ( WBD ) studio lot in Los Angeles, could represent a key component of that potential, according to a note published Tuesday by RBC Capital Markets analyst Tom Narayan.
Tesla is expected to unveil the first robotaxi prototype, which it calls the Cybercab, which is guided by AI-trained cameras and the company's autonomous driving software.
Narayan, who lifted his Tesla price target by $12 to $236 a share, said the event would "highlight a business that represents $153 billion of revenue for Tesla," a tally that comprises around 63% of his current valuation.
The nascent robotaxi market, Narayan argues, could generate $1.7 trillion in global revenue by 2040, when a host of players including app providers, fleet operators and carmakers is ultimately included.
CFRA analyst Nelson urges caution
CFRA analyst Garrett Nelson cautions, however, that earlier predictions on the size and scale of the robotaxi market, particularly from Musk himself, have proven wildly optimistic and argues that a true "driverless" taxi is still "several years away."
"In our view, the company remains far from achieving a level of autonomy that would even be considered Level 4 by the Society of Automotive Engineers, i.e., a high driving automation, where the vehicle can perform all safety-critical driving functions and monitor road conditions for an entire trip," he said.
Related: Tesla analysts update views after Q3 deliveries
"The key question is whether or not investors will give Tesla a pass on various near- and intermediate-term issues surrounding the story and continue to focus more on longer-term opportunities," said Nelson, who has carried a 'hold' rating on Tesla stock since late July.
"In our opinion, there is an increasing disconnect between the stock’s lofty valuation and the reality that Tesla’s earnings growth has hit a wall – and intermediate-term growth drivers are unclear," he added.
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Tesla is slated to publish its third-quarter-earnings report after trading closes on Oct. 16. Early estimates suggest a bottom line of 60 cents a share, down 9% from the year-earlier period, on revenue of around $25.57 billion.
Tesla shares were marked 1.52% higher by the close of trading Tuesday to end the session at $224.50 each, a move that leaves the stock up nearly 41.4% over the past six months.
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