Teslas are expensive cars, and if the $50,000 deposit to get on the list is any indication, the Roadster the company will unveil on October 1st will likely be its most expensive car.
teslaHowever, the option is not particularly expensive. One-month implied volatility is at or near the 36th percentile. In other words, despite the upcoming catalysts, and despite October being a month with above average volatility in general, it is well below average.
CyberCab’s launch in early September overwhelmed the analyst community, with Wells Fargo in particular noting that the robotaxi service was facing “implementation issues.” However, the stock price has since recovered. Now that the Roadster order book is open again and the one-month premium is near the low end of the range, the risk is clear if the Roadster launch similarly underwhelms investors, but this setup looks good for a breakout above CyberCab’s pre-launch levels.
The Roadster’s public unveiling is scheduled for October 1st at SpaceX’s McGregor Test Range in Texas. The amount requested is by no means small. You will receive a $5,000 refund on your credit card, followed by a $45,000 transfer within 10 days, but your reservation will not be confirmed until the transfer is complete. The book was also published in Canada and China. Tesla says the event will ultimately discuss pricing, specifications and production targets.
Skeptics will fairly point out that the company deposited a similar $50,000 in 2017 and has missed a long period of time since then. But the decision to reopen reservations two weeks before the announcement is itself a signal. We don’t ask our customers to run 50 wires for a car that’s going to embarrass us on stage. Some people may hope so. The Cybertruck’s rollout proved to be at least a little embarrassing, as the chief engineer broke the truck’s window in a demonstration to show how unbreakable the truck is.
I think Cybercab’s hangover is too much. We’re not sure what investors were expecting when the CyberCab went on sale in Austin on September 3rd, but some were clearly disappointed. Perhaps they thought the city would soon be completely transformed and immediately look like something out of a science fiction movie, but that was always an unrealistic expectation given the regulatory hurdles and other issues. Driverless ride-hailing will become part of the way people get around, and the question over the next few years won’t be whether Tesla’s first two-seater car will make it to prime time on day one. It’s about which companies can build hundreds of thousands (or millions) of self-driving cars and put them on the road at a cost that allows unit economics to work. Few companies on the planet can design, manufacture, and distribute complex consumer hardware at this scale. Tesla is one of them.
A strong early run looked good for Tesla, but the company has since shown it can do things that few companies outside of China can manage.
The fairest criticism of Tesla isn’t actually about its execution of new car technologies (although they tend to push a little over ambitious deadlines). This is a valuation, and a fair criticism when evaluating Tesla against traditional automakers, or even against Uber and Lyft as proxies for the robotaxi opportunity. It’s hard to defend this multiple against today’s profits. Tesla’s forecast earnings are 213 times, compared to Uber’s 22 times and Ford’s 7 times.
But the market has never valued Tesla, and for good reason. This is a company and founder who has repeatedly done what most people were told was impossible and foolish to try. Selling EVs to the masses for profit, charging networks that other companies are also connecting to, grid-scale storage, and next door SpaceX’s reusable rockets. A more useful framework is a technology company with rare, hard-won skills in engineering and manufacturing complex consumer products. Viewed through that lens, the premium looks less like a bubble and more like the price of autonomy, robotics, and energy options that few others can claim to be reliable.
With a semi-event held on September 24th, the Roadster announced on October 1st, and delivery scheduled for Q3 shortly thereafter, you might expect the one-month option to be bid, but that’s not the case. The 30-day implied volatility is about 41%, which is high in absolute terms for a megacap but near the bottom of Tesla’s own range over the past year. For a stock that routinely moves 5% in the headlines, that’s a reasonable price to pay for upside exposure.
Rather than buying calls outright, I would use a call spread to reduce my premium expense and reduce my sensitivity to a post-event volatility crash. The October 30th 380/440 call spread features the Roadster announcement, delivery report, and upcoming earnings.
Disclosure: Tidal owns/holds all securities mentioned in the article.
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