Jim Cramer Recommends Avoiding Tesla (TSLA) After Robotaxi Event
We recently published a list of Jim Cramer Latest Portfolio Update: Top 10 Stocks. Since Tesla Inc (NASDAQ:TSLA) ranks 6th on the list, it deserves a deeper look.
Jim Cramer during his October 14 program on CNBC looked excited as he celebrated the rebound of major tech stocks, saying these companies are showing their “staying power” despite the odds.
“We’re back. That’s right. Whatever you want to call them, these big tech plays are demonstrating their staying power no matter what happens.”
Cramer said that the latest earnings season would be critical for the overall market and investor portfolios. He also pointed out the broadening of the rally, saying other groups besides the tech industry are also rebounding.
“This rally is not a zero-sum equation where the rest of the market does nothing. Other groups can work, too, in this market. There’s a lot of money going around, and we know there’s a lot of money coming into the market. The Fed is cutting rates, and friendly cash won’t be worth as much as it was. But the staying power of the Magnificent 7 is truly unbelievable.”
For this article we watched several latest programs of Jim Cramer aired on CNBC and picked 10 important stocks he’s talking about. With each company we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 85
Jim Cramer in a latest program said Tesla Inc (NASDAQ:TSLA) shares fell because the much-awaited robotaxi event did not come up to expectations. Cramer said this event was the “whole reason” to own the stock.
“It all pivoted on this event. That is the whole reason to own the stock, something Elon Musk admitted on his first call. That turned it around for a while. People liked it. It nearly doubled in three months, but when Tesla Inc (NASDAQ:TSLA) reported another weak quarter in July and announced that it was delayed until October, the stock went into another tailspin.”
Cramer also mentioned Tesla Inc (NASDAQ:TSLA) bull Adam Jonas (of Morgan Stanley) comments who called out Tesla for a “disappointing” lack of details.
Cramer said Elon Musk’s response to the question about the timing of robotaxis was “underwhelming.”
“Wall Street clearly does not have much confidence that the cybercab will be viable anytime soon.”
Cramer said for now it’d be better to stay on the “sidelines” of the stock and avoid buying it.
The Tesla event was indeed 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’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 robo taxis but many believe they will not be enough to fix the company’s long-term challenges.
What are these challenges?
Tesla Inc (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 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.
For Q2 2024, Tesla Inc (NASDAQ:TSLA) saw a 20% year-over-year decline in revenue from China, while BYD reported over 20% growth in the same period. This trend may continue as Chinese automakers release new models, and Tesla could be forced to cut prices to maintain delivery volumes—further pressuring its operating margins in the coming quarters.
Tesla Inc (NASDAQ:TSLA) is overvalued. The company’s consensus earnings-per-share (EPS) estimate for fiscal year ending December 2026 is $4.27, putting its forward price-to-earnings (PE) ratio at 60.2. With Tesla offering price cuts, future EPS growth may fall short of expectations. Investors might consider selling now and waiting for a better re-entry point, or exploring other electric vehicle (EV) options.
ClearBridge Small Cap Value Strategy stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q2 2024 investor letter:
“The strength in the stock market adds significantly to that enormous transfer of wealth, which one could argue is good for shareholders. But is it causal? That is, did the stock market do well because CEOs got large stock grants? Are the CEOs just the lucky recipients of a windfall when the market goes up and their employees perform well? Or do they require huge grants to do their jobs that no one else could possibly do as effectively?
Tesla, Inc. (NASDAQ:TSLA), and most of its shareholders, certainly think the latter is true. In 2018, Tesla’s board of directors crafted a pay package for CEO Elon Musk that would award him 12 tranches of 10-year, fixed-price options on 1% of company stock for every $50 billion in market cap the stock added. In total, the options would be for 304 million shares of the company at $23.34 a share. He would receive no other compensation, until or unless the board decided otherwise. Shareholders approved that pay package, and the stock added all that market cap and more, giving Musk the right to buy 10% of the company for $50 billion less than it was worth, adding to his existing 13% stake. Minority shareholders sued, and a court sided with them and expunged the package in January 2024. “The process leading to the approval of Musk’s compensation plan was deeply flawed,” ruled Judge Kathaleen McCormik of the Delaware Court of Chancery as part of a 200-page decision. It seemed like a long-awaited check on excessive compensation to one individual for the achievements of an entire company….” (Click here to read the full article)
Overall, Tesla Inc (NASDAQ:TSLA) ranks 6th on Insider Monkey’s list titled Jim Cramer Latest Portfolio Update: Top 10 Stocks. While we acknowledge the potential of Tesla Inc (NASDAQ:TSLA), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TSLA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.