Last October, investors, technologists, and even skeptics tuned in from around the world for an event called "We, Robot," during which Tesla (TSLA 5.76%) previewed its progress in the autonomous driving race.
During the month leading up to the Oct. 10 unveiling of the company's self-driving robotaxi, shares of the electric vehicle (EV) stock soared as much as 16%. This is par for the course for a volatile momentum stock such as Tesla, which often moves in overly pronounced directions depending on the current narrative.
During the month of May, history seemed to repeat itself as shares of Tesla climbed by 23%. Let's break down what the hype around the stock is all about, and assess if it's a good buy before what could reportedly be its latest major product reveal on June 12.
Why is June 12 so important for Tesla?
According to countless news reports, Tesla will be launching a robotaxi service in its first market on June 12. Autonomous driving is one of the biggest pillars supporting the company's ambitions in artificial intelligence (AI). To say the company faces enormous pressure and intensifying levels of scrutiny leading up to the launch would be an understatement.
Image source: Tesla.
Listen carefully to Musk
The robotaxi presents a transformative opportunity for Tesla's long-run prospects. The combination of subscriptions for its full self-driving (FSD) software in its EVs as well as the unit economics from launching a ride-hailing service presents Tesla with a new form of high-margin subscription revenue.
The sticky nature of a business like this could generate billions in profit for Tesla on an annual basis, which the company could further invest in other growth areas or new AI-powered services.
While this is all exciting, investors need to be careful in sifting through narratives versus reality right now. During Tesla's first-quarter earnings call in late April, CEO Elon Musk said that the robotaxi likely won't be a major financial contributor for the company until "around the middle of next year, second half of next year."
Musk further attempted to level expectations during a recent interview with David Faber of CNBC. During the discussion, Musk said that the launch n Austin this month would start with only a handful of self-driving cars in the fleet He went on to say that the robotaxi business will scale up based on consumer demand and performance of the software.
The June 12 date surfaced via an unnamed source in a Bloomberg report on May 28.
Is Tesla stock a buy right now?
There is an art and a science to valuing stocks. Wall Street analysts often rely on a combination of industry research and comparable company analysis to build discounted cash flow models (DCF) that can help determine the intrinsic value of a stock.
Where things get blurred between art and science is when you try to place a value on a narrative -- that is, attempting to make forecasts on a new venture that does not have much in the way of comparable businesses to help benchmark it.
Looking at demand trends for ride-sharing applications such as Uber and Lyft as well as the current trajectory of Alphabet's autonomous vehicle subsidiary Waymo can be useful to some degree. However, trying to discern how successful Tesla's robotaxi business will be based on what the competition is currently witnessing most likely yields an incredibly loose projection.
With shares of Tesla already full of momentum, I think the prudent strategy is to sit on the sidelines during the initial phases of the robotaxi launch, which may or may not happen on June 12 in Austin. Buying the stock right before the initial launch shouldn't make much of a difference for your gains if you're an investor with a long-run time horizon.
If the robotaxi service scales up to the size that Musk thinks it will, investors will have ample opportunity to buy shares as Tesla evolves into more of an AI-centric business.
