Tesla is a special case. It was explained to me they are voluntarily ceding their EV market dominance in order explore other opportunities. I've never heard of a market leader just giving up like that before. Gutsy move, if true.
Tesla management looked at their three-digit PE ratio, looked at a trajectory of becoming a regular mass-production low-margin automaker with a single-digit PE ratio, and decided to gamble it all on remaining a cutting edge growth company forever by continually inventing new growth narratives.
It probably seemed like a risky move at the time. They knew internally that unsupervised, not-geofenced FSD was a very, very long ways off from being a sell-able or profitable product. They should have known that the cybertruck was going to be a niche product and a loss leader, because it was a product for investors not consumers. And the whole solar / tunnel drilling themes were already played out.
Yet the same market that brutally punishes other companies for missing earnings forecasts by a penny has been remarkably forgiving of Tesla's multiple failures to launch profitable products, even after burning over a half billion a year in R&D.
The company is running off the profits from selling model Y's and model 3's, and burning most of the cash flow from these auto businesses on R&D trying to find that next great non-car thing that will keep their stock afloat. Even if every one of Tesla's latest and greatest new product ideas turned out to be a flop, it seems they could still maintain their high PE ratio
as long as they had a new crop of latest and greatest ideas to replace the old ones.
When does the vaporware music stop? When do investors bail on the unfulfilled promises, the way they bail on pharmaceutical firms whose promising products prove ineffective at generating profit?
In Tesla's earlier history, the company was only saved by fresh investment capital when they started being able to actually mass-produce a product the public wanted - the Model 3. Perhaps a high-margin FSD package with a semi-acceptable crash rate (maybe a fatality rate on par with sport motorcycles would be acceptable?) will save them, now that the US market is walled off against BYD's rapidly-improving free solution. But no, it won't be the Optimus remote-controlled robot or a "cyber-taxi". By failing to release an affordable "Model 2" or a more practical light truck, Tesla is betting that their legacy cash cows will continue to subsidize investors' hopes of the next great thing.
The unraveling scenario goes like this:
1) Model Y and Model 3 sales tank, because these models haven't been updated in many years (already happening) and EV demand collapses in the US as tax benefits are rolled back starting in January 2026.
2) TSLA's earnings swing negative, and the company must throttle back investing cash flows, including R&D, for the first time ever.
3) TSLA stock falls because the reduction in R&D spending reduces the odds of the company breaking open whole new industries or owning major technological breakthroughs. The reduction also reduces the chances of a meaningful refresh for Tesla's legacy products.
4) In desperation, Musk introduces "Johnny Cab" which is driven by a fake Optimus robot and is designed to work on Mars. The prototype explodes, killing Musk, after he throws a bowling ball at the robot's head.
