Tesla Robotaxi Profits Delayed, JPMorgan Cautions

Key Takeaway

• JPMorgan warns Tesla's robotaxi revenue is years away, with significant earnings unlikely until after 2027.
• Tesla shareholders face a critical vote on Elon Musk’s $56 billion pay package, which could impact the stock by over 5%.
• JPMorgan's Marko Kolanovic maintains a bearish market outlook, citing delayed Fed rate cuts and multiple risks.

Tesla's Robotaxi Prospects

Tesla Inc. investors anticipating a swift rollout of a robotaxi business may need to temper their expectations, according to a recent report by JPMorgan Chase & Co. analysts. Ryan Brinkman, an analyst at JPMorgan, noted in a client report that while Tesla is expected to showcase a robotaxi concept and possibly an accompanying app on August 8, significant revenue generation from this venture is unlikely for several years. This projection is partly based on a recent meeting with Tesla’s director of investor relations, who indicated that the company plans to build robotaxis on a next-generation vehicle platform. This platform will not be launched until Tesla is closer to fully utilizing its existing production capacity, which could take several years.

Elon Musk, Tesla's CEO, has shifted the company's focus towards robotaxis after a series of price cuts failed to boost sales of its electric vehicles. Despite Musk's long-standing vision of a shared fleet of autonomous cars, the necessary infrastructure and regulatory approvals for such a service are still lacking. Tesla's next growth phase is expected to be driven by the introduction of lower-cost models by 2025, utilizing existing platforms and assembly lines. The next-generation platform, which may not be ready until around 2027, will be reserved for future developments.

Musk's Pay Package Vote

Tesla shareholders are facing a critical vote on Elon Musk’s $56 billion pay package, which is unlikely to pass, according to Bernstein analyst Toni Sacconaghi. The vote, scheduled for Thursday, could significantly impact Tesla's stock. Sacconaghi noted that about 25% of eligible voting shares are held by passive shareholders who are likely to follow the “no” recommendation of Institutional Shareholder Services and Glass Lewis, or by institutional investors who have already expressed their intention to vote against the package. Historically, Tesla has never seen turnout higher than 63% in a shareholder vote. Even with a higher turnout of 75%, Musk would need 73% of unaccounted-for voters to support his pay package.

Sacconaghi warned that if the pay package is rejected, Tesla's stock could drop by more than 5% due to fears that Musk might leave the company. Conversely, if the vote passes, the stock is expected to respond positively, though the reaction may be more muted. Sacconaghi rates Tesla as underperform with a $120 price target, implying a 32% downside from Friday’s close. He emphasized that investors might be underestimating the risk of the pay package being rejected, suggesting a skewed risk/reward scenario leading up to the shareholder vote.

Broader Market Outlook

JPMorgan’s equity strategist, Marko Kolanovic, has expressed a bearish outlook for the stock market, citing diminished prospects for Federal Reserve rate cuts and a plethora of risks. Kolanovic noted that equity markets have become increasingly disconnected from bonds, with equities rallying even as interest rates reset higher. He now expects the first Fed rate cut to occur in November, later than previously anticipated.

The Labor Department reported that the U.S. economy added 272,000 jobs in May, surpassing the Dow Jones estimate of 190,000. Despite this positive data, the S&P 500 closed flat on Friday, and the yield on the benchmark 10-year Treasury note jumped more than 10 basis points to over 4.4%. Kolanovic highlighted several risks that are not being priced into the market, including elections, geopolitical tensions, and narrow market breadth. He reiterated a defensive investment strategy, recommending an overweight position in commodities and cash while being underweight in stocks.

Investors are looking for further clues on the Fed's interest rate policy, with the central bank set to conclude a two-day policy meeting on Wednesday. While no policy changes are expected, the CME Group’s FedWatch tool indicates a roughly 50-50 chance of a rate decrease in September and a 68.5% possibility of another cut in November. JPMorgan remains the most bearish firm surveyed by CNBC PRO, with an S&P 500 target of 4,200, compared to the S&P 500's close at 5,360.79 on Monday.

Street Views

• Ryan Brinkman, JPMorgan Chase & Co. (Bearish on Tesla):

  "We expect Tesla to show a robotaxi concept on Aug. 8 and perhaps an accompanying app, and to reveal more about its expected business model... But we do not expect material revenue generation likely for years to come."