You're here (Tesla shares - ticker TSLA) is stabbing a division that CEO Elon Musk recently called "essential" to the company's long-term success, raising new questions about the world's largest carmaker by market capitalization.
On Tuesday, according to Bloomberg, the company fired more than 200 employees working on Tesla's Autopilot driver assistance software, closing an entire office located in San Mateo, California. The relevant team was responsible for processing and tagging customer vehicle data.
Last week, Musk confirmed that Tesla was about to cut about 10% of white-collar staff globally. In fact, he argues that the electric vehicle manufacturer had grown too fast and was now redundant. These cuts appear to be a small part of the overall engineering effort within the company, but they come at a key moment in Tesla's effort to perfect fully autonomous vehicles.
Could Tesla be worth "practically zero"?
Musk has long supported the concept of autonomous vehicles and in 2019 called Tesla vehicles "assets under revaluation", trusting that Tesla owners could one day use their vehicles as robotaxis and make money on cars instead of leaving them in parking lots. .
In an interview with a group of Tesla owners earlier this month, Musk said it was "essential" for Tesla to produce complete autonomous driving technology, calling the technology "the difference between Tesla being worth a lot. of money or practically worth zero ".
Although Tesla is the leader in electric vehicle sales, the company faces stiffer competition than at any other time in its history. Historic automakers, including General Motors and Ford, have made electric vehicles a priority, joining newcomers, including the Lucid Group and NIO, to bring rival vehicles to market.
Tesla's autonomous driving technology is seen by company executives as an important competitive advantage. Earlier this year, Cathie Wood's Ark Invest said Tesla stock could be worth up to $ 4.600 per share - more than six times its current price - by 2026, assuming robotaxis are in service by then.
Ark believes Tesla could generate more than $ 450 billion in annual revenue from its fledgling robotaxi business.
Is Autopilot going off course?
The layoffs also come at a time when Autopilot is under increasing regulatory scrutiny. Last October, the head of the US National Transportation Safety Board (NTSB) called Tesla's marketing of driver assistance software "misleading". Most recently, the National Highway Traffic Safety Administration updated an investigation into Tesla's systems. This, in view of a potential recall or new limits on how to use the system.
Tesla's systems, unlike most of its rivals, forgo radar and other depth perception technologies, instead relying on cameras to power artificial intelligence and keep the vehicle on the road. The team that was fired on Tuesday was responsible for training and perfecting Tesla's artificial intelligence.
Tesla investors need this technology to work
Tesla delivered more than 936.000 vehicles in 2021 and as a carmaker it has never been more stable in its history. However, the company's stock price and health have always been somewhat disconnected and investors should closely follow Autopilot developments.
While it seems unlikely that Musk is right and Tesla's value will drop to near zero, as an automaker Tesla is valued far more than the competition. Tesla trades at over 21 times its book value, while both Ford and General Motors trade at a small premium over their book values.
As the Ark model notes, Tesla gets this rating due to its technological prowess, not its ability to make cars.
Musk is credited with trying to streamline Tesla in anticipation of a potential economic slowdown and has earned the benefit of the doubt over the years of running the company. But for the valuation to hold, Tesla will need to show progress towards self-driving in the coming quarters.
Investors must hope Musk isn't cutting too deep or in the wrong places, or else his warning words could become a self-fulfilling stock price prophecy.