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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Tesla has been teasing self-driving robotaxis for years. Chief executive Elon Musk now says they are just months away. With typical grandiloquence, he claims that turning the company’s electric fleet into autonomous vehicles could be “the biggest asset value appreciation in history”. Yet Tesla’s autonomous driving software still requires drivers to keep their hands on the steering wheel and their eyes on the road. It is a stretch to imagine that robotaxis can turn the company’s fortunes around this year.
Musk presided over the company’s latest quarterly earnings call with a confusing message. Look at the company’s spending decisions and it seems as if everything is targeted towards addressing the 13 per cent drop in automotive revenues. Tesla is cutting existing vehicle prices in a bid to reverse the fall in sales and planning cheaper models next year. To reduce costs, it will lay off 10 per cent of its workforce.
Listen to what Musk says, however, and it sounds as if Tesla’s main concern is its expensive autonomous driving project. Earlier this month, Musk wrote on X, “Tesla Robotaxi unveil on 8/8”. On Tuesday it showed plans for a ride-hailing app.
There are no details on regulatory approval or rollout. The focus on robotaxis seems an attempt to draw attention away from falling sales. Inventory is piling up. Tesla has 28 days of unsold supply, up from 15 days last year. This may be connected to rising competition and the reduction of US government subsidies, two factors over which Tesla has no control. But Musk’s determination to engage in political fights online has not helped. If the US raises interest rates again this year, higher car financing costs could further dent demand.
The highs of late 2021, when Tesla was a trillion-dollar stock rushing to scale up production, feel far away. Free cash flow has turned negative for the first time in four years. Executives are departing and the stock is down more than 41 per cent in the year to date.
Still, this does not constitute a full re-rating. Tesla’s enterprise value remains many times the size of carmakers like Ford. Investors seem keen to give Musk the benefit of the doubt. The share price rose in after-hours trading following news that Tesla was planning more affordable vehicles next year, despite the company opting not to confirm a date for its anticipated $25,000 model. Short interest is below 4 per cent, down from about 20 per cent in 2020. Tesla has climbed out of bigger holes than this one in the past. But to do that it needs cheaper cars, not robotaxis.