Tesla ( TSLA ) stock is up about 72% from its April 2024 low as investors supported its Cybertruck, earnings, and upcoming, now-postponed Robotaxi event. I think Tesla’s Robotaxi was a flop and that autonomous taxis and electric vehicles are far less practical than investors are pricing in. Hybrid sales have outpaced electric vehicle sales in 2023 and Honda ( HMC ) has outpaced Tesla’s earnings growth of all companies. As a result, TSLA’s rally could be short-lived and I’m bullish on the stock.

Robotaxis have flopped and may continue to do so

The hype around Tesla’s Robotaxi has continued despite years of broken promises. In 2019, Elon Musk said, “I feel very confident in predicting autonomous Robotaxis for Tesla next year.” Fast forward to 2024, and Tesla’s fully self-driving (FSD) cars still require constant driver supervision and occasional driver intervention. Some have even suggested that the latest iteration of FSD will be worse, not better.

Meanwhile, Alphabet (GOOGL) and General Motors (GM) have autonomous taxis that ferry passengers around San Francisco without direct supervision. But their use has shown that robotaxis aren’t as practical.

Without the driver’s supervision, passengers in the back seat have engaged in extracurricular activities, sometimes of an illegal nature. There is no one present to prevent smoking in the vehicle or other forms of vandalism to the vehicle. These vehicles have also caused traffic jams and other problems and have been disabled by protesters who have placed cones on the hoods.

Hybrid vehicles and competitors gain market share

Recently, hybrid vehicle sales have been growing faster than electric vehicle sales in both the U.S. and China. In the U.S., “hybrid sales grew 65%, while electric vehicle sales grew 46%,” according to Daily Newsletter for Investors. Also, “sales of plug-in hybrid electric cars grew about 75% year-on-year in China in the first quarter (of 2024), compared with just 15% for sales of battery electric cars,” according to the International Energy Agency. Why is this happening? Perhaps because hybrids are more practical for most consumers.

Additionally, Tesla has been cutting prices and struggling to maintain market share, with BYD (BYDDF) revenue growth far outpacing Tesla’s over the past 12 months. Price wars are a common occurrence in the auto industry, where there are so many players. Tesla’s first-mover advantage in EVs is now gone, and its profit margins may be the next to fall. This is likely just the beginning, as China is producing extremely affordable EVs and nearly every automaker globally has an EV plan.

Tesla’s net income is overstated

To make matters worse, Tesla has managed to drastically overstate its net income by reporting a one-time tax benefit of $5.9 billion in the 4th quarter of 2023. In the company’s latest annual report, Tesla reported the following: “In 2023, our net income attributable to common shareholders was $15.00 billion, representing a favorable change of $2.44 billion compared to the prior year. This included a one-time non-cash tax benefit of $5.93 billion related to the release of valuation allowance on certain deferred tax assets.”

So, what would Tesla’s PE ratio be without this one-time, non-cash tax benefit? Well, if we subtract this $5.93 billion tax benefit from Tesla’s $13.61 billion in net income over the past 12 months, we get $7.68 billion. Divide the company’s $764 billion market cap by this, and you get a PE ratio of 99.5x, which is comparable to the company’s forward PE. This valuation is far too high, given everything that’s happening in the world with EVs and autonomous taxis.

Is TSLA stock a bargain according to analysts?

Currently, 13 of the 35 analysts covering TSLA have a Buy rating, 13 have a Hold rating, and nine have a Sell rating, resulting in a Hold consensus rating. TSLA’s average price target is $193.18, implying 19.4% downside potential. Analyst price targets have ranged from a low of $22.86 per share to a high of $310 per share.

The Core of TSLA Stock

Tesla’s net income is overstated due to a non-cash tax benefit. Adjusting for this, we see that the company’s profits have been crushed as it tries to maintain market share amid an influx of cheap Chinese electric vehicles and increasing competition from hybrids. Waymo and Cruise achieved full autonomous taxi capability before Tesla, but the outlook for autonomous taxis looks bleak, with a flurry of problems cropping up. At 99.5x adjusted earnings, TSLA’s rally may be short-lived.

Revelation