Tesla robotaxi pivot 'extremely risky' for investors: Analyst

Deutsche Bank has revised its rating on Tesla (TSLA), downgrading the stock to Hold from a Buy rating as the automaker shifts its focus to the production of a robotaxi. Deutsche Bank Lead US Autos Analyst Emmanuel Rosner joins Market Domination to explain the downgrade.

Rosner says "there's a strategic change" occurring within Tesla, saying that the company's new pricing strategies could potentially boost margins and overall profitability. However, he cautions that if Tesla redirects all of its resources toward the development of a robotaxi, it could face prolonged challenges.

For long-term investors, the concept of the robotaxi remains "exciting", but Rosner expresses concerns about Tesla's new direction. He emphasizes the risks of concentrating the company’s efforts solely on the robotaxi, moving away from its core electric vehicle production. According to Rosner, this strategy "is extremely risky for investors", as "it's betting the entire company on robotaxi", an unproven market segment that other automotive competitors have faced setbacks in.

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This post was written by Angel Smith

Video Transcript

JULIE HYMAN: All right. It is time now for the Call of the Day. And we are talking again about Tesla. It is getting another bear, or at least not as strong a bull, on Wall Street. A long-time Tesla bull downgrading the stock to hold from buy.

Emmanuel Rosner, who is Deutsche Bank lead US auto analyst, is joining us now on what was behind that change in perspective. Emmanuel, thank you so much for being here. And it seems like the change in perspective is relatively straightforward here. It's what looks like a pivot away or a de-emphasizing of the lower cost model Tesla, right?

EMMANUEL ROSNER: That is correct. Thanks for having me. So I believe that there is a strategic change going on at Tesla right now, and this is essentially thesis changing. Even though we've been berated, we've been at the forefront of warning investors that near-term conditions are really, really challenging for Tesla, but that you shouldn't really care that much if you're longer term investors because around the corner there's this Model 2, the cheaper model, coming at the $25,000 price point, which could really inflect things back up-- volumes, margins, earnings, free cash flow.

These would be really the game changer. Now, based on multiple media reports, it very much seems like Tesla is no longer working on the Model 2. Instead, it's putting all its eggs in the robotaxi basket.

If that's the case, you have much stronger challenges for much longer than anticipated. There is no turnaround on earnings or free cash flow any time soon. That basically means that it is much more difficult to remain patient and positive.

- Yeah. And Emmanuel, I'm curious, is the challenge here in how long you would need to wait or the amount of uncertainty around this robotaxi model ever coming through? Because Tesla has long been a story that investors have had to have a lot of hope in. But I'm wondering, are we testing the limits of that at this point?

EMMANUEL ROSNER: Yeah. So in our discussion with investors, I think people usually, especially longer term investors, they're excited about the concept of robotaxi. It's a good business. It's something that has a potential to be a meaningfully better business than making cars. It's recurring revenues. It's software revenue.

It's great. The issue is what probability of success can you really attribute to it, what is the timeline for it? And so, our sense is as long as there was a core business, which is essentially dominant EV maker, and robotaxi was an optionality on top, this was very exciting. This was essentially the crux of the bull thesis.

You have a successful EV maker which could really become dominant, and then look at what they're doing on the robotaxi side. Now, essentially, what seems to be happening in terms of strategy is we're no longer focusing on making EVs. We're no longer focusing on making them affordable. We're betting the entire company on robotaxi.

There's no new consumer model coming. As a result, the current business is essentially fading. It's melting. You are putting all your eggs in that robotaxi basket that is extremely risky.

It is extremely risky for investors in terms of profile. It is also probably way past most people's investment horizons in terms of monetizing it. So I guess the short answer is, it's both. It's much higher risk and it's also way too far out.