Tesla, Inc. (TSLA.US) is heading towards its worst financial quarter in a decade, can the Robotaxi project support Musk's future bets?

The outlook for Tesla, Inc.'s core car manufacturing business is increasingly gloomy, posing a serious test for CEO Elon Musk on whether he can boost the company's stock price with his vision of the future of self-driving cars. The electric car maker is expected to report the most severe revenue decline in nearly a decade after market demand for Tesla, Inc. vehicles is gradually decreasing. Analysts expect adjusted earnings per share to be 42 cents and revenue to be $22.6 billion, down 18% and 11% respectively from the same period last year. This would be the largest quarterly sales decline since 2012. Furthermore, the federal incentives in the United States that aim to encourage electric car sales are set to be phased out by the end of this year, potentially making the situation more challenging in the coming months. This puts more pressure on Musk to advance Tesla, Inc.'s robotaxi project, which is increasingly seen as a key factor supporting the company's stock value, which has risen 50% since its low point in April. The project underwent limited testing in Austin last month. Nicholas Colas, co-founder of DataTrek Research, said, "Tesla, Inc. relies more on investor confidence in the company's long-term vision compared to other large-cap stocks." He has been an industry analyst for the automotive sector for a decade. Tesla, Inc.'s sales have been impacted by product aging and public dissatisfaction with Musk's role in the Trump administration, where he was responsible for significant government spending cuts. Due to these reasons, Tesla, Inc.'s stock price has also been impacted, dropping 31% from its peak in December of last year. At that time, Musk's relationship with Trump was seen as a favorable factor for the company. However, Tesla, Inc.'s price-to-earnings ratio remains high at 142 times (meaning its expected profits are 142 times the stock price), while the Nasdaq 100 index has a price-to-earnings ratio of only 27 times, reflecting a significant gap between the company's financial situation and its stock price. Data shows that Wall Street has downgraded earnings expectations for 2025 by 28% over the past three months. In 2024, Tesla, Inc.'s car manufacturing business contributed 90% of the company's revenue and brought in 94% of its gross profit. However, the business has been plagued by a series of issues, including pausing production to reconfigure production lines for the redesigned Model Y and facing increasingly intense competition from local brands in China. Additionally, tax legislation proposed by Trump will eliminate two key incentives for the U.S. electric car industry. A $7,500 tax credit for most domestically produced electric cars will be phased out starting in September, and a punitive measure for traditional car manufacturers who do not comply with federal fuel economy standards will also be abolished. These tax credits brought in $2.8 billion in revenue for Tesla, Inc. last year. Yet, optimists for Tesla, Inc. have not been deterred. Nearly half of the analysts tracking the company's stock recommend investors to buy the stock, a proportion that has remained unchanged since the beginning of the year. Self-driving taxis are a major reason for this optimism, with Musk predicting that by the end of 2026 there will be tens of thousands of these vehicles on the road. Long-term investors also mentioned other futuristic visions, such as the Optimus humanoid robot and automation by Siasun Robot & Automation, and their belief in Musk's ability to continually push innovation boundaries. According to DataTrek's Colas, about 95% of Tesla, Inc.'s stock price depends on the company's future performance. Compared to other stocks in the so-called "Big Seven Tech Giants," only NVIDIA Corporation (NVDA.US) and Microsoft Corporation (MSFT.US) have a similar proportion, around 75%. Tesla, Inc. is currently planning to introduce self-driving taxis in California and Arizona. Earlier this month, Musk mentioned that self-driving taxis could be launched in the San Francisco Bay Area in "a month or two," pending approval from relevant regulatory authorities. However, the company faces fierce competition. Alphabet Inc. Class C's subsidiary Alphabet (GOOGL.US) has its self-driving car division Waymo offering similar services in Los Angeles, Austin, Phoenix, and San Francisco. Additionally, through Uber Technologies, Inc.'s platform, Waymo has recently launched such services in Atlanta, with plans to expand to Miami and Washington next year. Uber Technologies, Inc. is also partnering with electric car manufacturer Lucid Group (LCID.US) and self-driving technology startup Nuro to introduce a fleet of self-driving taxis. UBS Group AG analyst Joseph Spak said, "It is this focus on long-term growth that makes Tesla, Inc. the most 'story-driven' stock." Joe Gilbert, portfolio manager at Integrity Asset Management, added, "Tesla, Inc.'s success story is tied to Musk himself. If he can convince the market that he is refocusing on self-driving taxis and brand-building, then the stock can perform well."