3. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 99
Jim Cramer in a latest program discussed the reason why some remained on the sidelines on Tesla Inc (NASDAQ:TSLA) and missed the post-election rally. Cramer mentioned slowing EV sales, concerns around a possible clash between Musk and Trump down the road and headwinds in China as some of the reasons that compelled many to doubt Tesla stock. However, Cramer believes Tesla has become a stock that can keep going higher irrespective of the state of its underlying business.
“Once you get a CEO with that kind of political influence, it’s easy for the faithful to imagine unlimited possibilities. This means they’re no longer constrained by the price-to-earnings multiple—they’ll pay anything for Tesla Inc (NASDAQ:TSLA), much higher than these prices. They’re actually insensitive to price. Oh, and did I mention that the brokerage firm Mizuho just upgraded the stock from hold to buy based on an improving outlook under the Trump administration?”
Looking beyond the recent spike in Tesla shares amid Donald Trump’s victory, Tesla’s fundamentals are challenged. How? Tesla Inc’s (NASDAQ:TSLA) key robotaxi event was short on details. Notably absent was the discussion of a “more affordable” model that Musk had previously mentioned to boost confidence in Tesla’s vehicle sales growth outlook.
What about the $30,000 price tag claim?
Musk has indicated that the Cybercab will have a production cost of approximately $30,000. Operating within the robotaxi fleet is projected to cost around $0.20 per mile. With a production cost of $30,000, the retail price of the Cybercab is likely to exceed this figure. For instance, if the Cybercab is priced at $30,000 per unit, that translates to $15,000 per seat. In contrast, the average price per passenger seat in Tesla Inc (NASDAQ:TSLA)’s most affordable long-range RWD Model 3—factoring in full self-driving (FSD) licensing—is under $10,000 ($29,990 post-incentive vehicle price plus $8,000 for the FSD license, divided by four passenger seats). Regarding operational costs, while the Cybercab is expected to cost $0.20 per mile, charging the Model 3 is estimated at under $0.10 per mile, leaving a significant margin to cover maintenance and downtime.
There is a lot of hype around Tesla Inc (NASDAQ:TSLA) robo taxis but many believe they will not be enough to fix the company’s long-term challenges.
What are these challenges?
Tesla Inc’s (NASDAQ:TSLA) product lineup is showing signs of stagnation, with over 95% of sales still coming from the Model 3 and Model Y. Meanwhile, competitors are rolling out more advanced models. Even Rivian’s CEO suggested Tesla Inc (NASDAQ:TSLA) could be nearing market saturation for these models. According to Reuters, Tesla’s market share in Europe is slipping as legacy automakers like BMW post stronger sales. Chinese competitor BYD is also gaining ground in Europe, despite talk of tariffs.
Baron Opportunity Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q3 2024 investor letter:
Tesla, Inc. (NASDAQ:TSLA) designs, manufactures, and sells EVs, related software and components, and solar and energy storage products. Tesla shares contributed to performance during the quarter, reflecting increased investor confidence and optimism in Tesla’s AI initiatives, stabilization in the company’s industrial operations, including strong growth in its energy segment, and the anticipated launch of new vehicle models in the first half of 2025. After years of industry-wide investments in autonomous vehicles, advancements in AI technology have accelerated the development of autonomous driving technology. Tesla deployed its AI-based Full Self Driving (FSD) solution last year and has demonstrated rapid improvements in driving performance. It has articulated a goal of achieving nearly a 20-fold improvement in miles driven between critical disengagements – soon exceeding 10,000 miles – over a two-month period this fall.
AI relies on vast amounts of high-quality data and computational power, and we believe Tesla possesses distinct assets that will serve as a strong foundation for its AI initiatives. Since 2016, every Tesla vehicle produced has been outfitted with cameras and essential hardware, resulting in millions of connected cars globally that gather data from billions of miles driven each year by the Tesla fleet. This rich and unique dataset is invaluable for FSD training. Tesla is also differentiating with its AI training compute factory. Tesla finished 2023 with close to 15,000 NVIDIA H100 chip equivalents in training computation power. By the second quarter of 2024, it doubled this capacity. In the third quarter, the company activated its advanced training data center in Texas, which should allow the company to harness up to 90,000 H100 equivalent compute power by the end of 2024 – six times the compute capacity it had at the beginning of the year and by far the world’s largest autonomous driving training cluster. Unlike any other automotive company, Tesla is investing billions of profits generated by its automotive segment in its AI initiatives aiming to capture material share in lucrative markets of autonomy and robotics…” (Click here to read the full text)
