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The Tesla (NASDAQ:TSLA) share price is quite frankly hard to keep track of. One moment its down near $220, the next it’s pushing towards $400.
However, next week could be a big week for the company. The stock’s valuation hinges not on electric vehicles (EVs), but its potential leadership in the autonomous driving space.
As such, Tesla’s upcoming robotaxi launch in Austin, Texas, set for 12 June, has reignited debate over the company’s sky-high valuation and the potential for dramatic share price swings in the coming week.
The move marks Tesla’s long-awaited entry into the autonomous ride-hailing market. With rivals like Waymo, Zoox, and Avride already operating in the city’s tech-friendly environment, Tesla may be in danger of falling behind.
The valuation is outstanding
At the heart of any discussion about Tesla — or any stock — is valuation. Tesla’s current and forward multiples remain among the highest in the consumer discretionary sector. The company’s forward price-to-earnings (P/E) ratio stands at 180.4 times, nearly 1,000% above the sector median of 16.4 times, and even higher than its own five-year average of 115.1 times.
The forward price-to-earnings-to-growth (PEG) ratio is 8.6. That’s more than four times the sector median — and remember some of these other companies will pay a dividend. This tells us that even with projected earnings growth, the stock is expensive by growth investing standards.
Meanwhile the price-to-sales (P/S) and enterprise value-to-EBITDA (earnings before interest, tax, depreciation, and amortisation) ratios tell a similar story. Tesla’s forward P/S is 11.31 (sector median is 0.87), while its forward EV-to-EBITDA is 76.58 (sector median: 9.73). These metrics indicate Tesla is valued not just as a carmaker, but as a tech company with enormous anticipated future profits.
It’s all about robots and robotaxis
The market’s optimism, or overoptimism, is rooted in the robotaxi story. Tesla aims to dominate in the sector by quickly scaling its robotaxi operations globally. In theory, it’s a high-margin business with strong recurring revenues. This would fundamentally alter the company’s earnings profile.
However, this optimism is highly speculative and contingent on overcoming significant technical, regulatory, and competitive hurdles. And that’s why it’s so important that Tesla impresses with its launch next week.
There’s also the Optimus robot. This is Tesla’s humanoid robot, which like the robotaxi venture, is built around developments in artificial intelligence (AI). Optimus could also be game changing.
Little room for error
Despite the possibilities, Tesla’s valuation leaves little margin for error. And this risk is compounded by the competitive landscape in Austin. Waymo, especially, already established a presence, and its technology relies on different approaches — such as lidar and radar — compared to Tesla’s camera-based system.
And while Elon Musk touts Tesla’s approach as more scalable and cost-effective, the company has a history of missing self-imposed deadlines on autonomy, which could test investor patience if the rollout stumbles.
Personally, I want to see Tesla do well. I want companies to succeed and push the boundaries of technology. However, I believe Tesla’s execution risk is considerable and the valuation hard to justify. That’s why I’m watching from the sidelines.
