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Tesla’s (NASDAQ:TSLA) long-awaited — and frequently delayed — robotaxi launch has come and gone, earning mostly favorable reviews. But the stock’s muted performance since Sunday points to a more measured reception from Wall Street.
Tesla (NASDAQ:TSLA) launched its driverless ride-hailing service on Sunday in Austin to a select group of people with the majority reporting a “smooth ride” and a “game changer” with few difficulties navigating the city streets or obstacles of the Texas capital.
“We expected it to be impressive, but walking away from it, all there is to say is that this is the future,” said Wedbush analyst Dan Ives.
The initial reactions launched Tesla (NASDAQ:TSLA) shares higher on Monday. But the follow-through is giving investors reason to be more cautious, namely, reports that the vehicles often veered into the wrong lanes, or exceeded posted speed limits, drawing the interest of NHTSA regulators who said it will “take any necessary actions to protect road safety.”
In the early hours after Sunday’s launch, Tesla (TSLA) shares quickly gained altitude and were up ~10% at Monday’s open, a reaction that Morgan Stanley’s Adam Jonas suggested showed how low expectations were for Tesla’s autonomous ambitions.
“Is the bar that low for Tesla’s autonomous expectations that a lack of injury or serious accident for a handful of cars with a safety monitor in the passenger seat can trigger such a relief rally?”
With cooler heads prevailing, the stock has not only erased Monday’s gains but extended losses over the past two sessions.
One reason for the more tempered performance of Tesla’s (TSLA) stock is fears of regulatory intervention to address lane veering and speeding, as well as a new Texas law that could scuttle a full-scale Austin roll-out.
Another is scaling challenges.
“The use of an Austin-specific tech stack, a Tesla employee being present in the vehicle, and the navigation/lane issue reported in the first day of use suggests scaling will be slow in the near term,” Goldman Sachs analyst Mark Delaney said in his note to clients. And the degree to which Tesla can scale its robotaxi business will ultimately determine the value of its ride-sharing business.
While Tesla CEO Elon Musk made an ambitious prediction regarding the proliferation of his robotaxi, Alphabet’s (GOOG) Waymo has shown that scaling is more difficult. The company has spent more than 10 years on AV technology and has only reached 1,500 robotaxis across a limited number of U.S. cities.
“Tesla must therefore compress years of real-world learning into mere months,” to meet Musk’s lofty goal of a million robotaxis on the road by the end of 2026, industry analysts say.
However, if Tesla is able to benefit from scale/early-mover benefits and low hardware costs, Delaney believes there are scenarios where Tesla’s rideshare business could have a very attractive margin.