From Launch Party to Federal Probe: What Went Wrong With Tesla's Cybercab in 24 Hours

If there's one thing Elon Musk understands, it's the value of showmanship.

From setting audacious goals to making spectacular business predictions to launching a sports car into space, Musk's charisma has been one of his biggest assets. It's a big reason he's been able to lead two of his businesses to trillion-plus-dollar market valuations.

But yesterday's Tesla (NASDAQ:TSLA) Cybercab launch in Austin was, by all accounts, devoid of showmanship. It was invitation-only. There was no livestream. There was no press release about it on Tesla's website. Even Musk himself didn't bother to attend (although he did post prerecorded videos about the Cybercab on X).

It's almost as though he had an inkling of what was in store.

Here's how a much-anticipated product launch turned into a stock downturn, a federal probe, and an uncertain future for Tesla shareholders in less than 24 hours.

Image source: The Motley Fool

The event turned a Tesla stock rally into a rout

The Cybercab event in Austin was supposed to show off an updated version of its robotaxi, a gold-toned two-seater with butterfly doors and no steering wheel or pedals.

Investors and Tesla fans were clearly expecting big things. Shares were up 5.4% on Thursday in anticipation of the launch, while millions of fans were reportedly waiting on X for a livestream that never materialized.

Tesla analysts certainly weren't impressed. Analysts from Wells Fargo published a note saying the event was underwhelming and that the Austin robotaxi service faced "early execution issues." Meanwhile, RBC Capital Markets analysts released their own note complaining about "limited new incremental disclosure" about unclear details of the upgraded Cybercab, including "key outstanding questions around pricing, production cadence, and regulatory approvals."

But the worst was yet to come.

NHTSA opens an audit into the Cybercab

Adding to the newly launched vehicle's problems, the National Highway Traffic Safety Administration (NHTSA) announced this morning that it was opening an "enforcement action" called an Audit Query (AQ) into Tesla's Cybercab self-certification.

Basically, for the Cybercab to begin commercial operations, which have now begun in a "geofenced" area of Austin, Tesla needed to certify to NHTSA that the vehicles complied with all Federal Motor Vehicle Safety Standards (FMVSS). Self-certification is the standard process for U.S. automakers.

However, the FMVSS – which wasn't created for autonomous vehicles – require cars to have safety features like brake pedals and rearview mirrors that aren't present in the Cybercab.

Image source: Tesla.

In its investigation summary, NHTSA noted:

"Tesla notified the Agency that it certified those Cybercab vehicles as compliant with all applicable [FMVSS] ... The vehicles lack permanently attached, conventional manual controls, such as a brake pedal, gas pedal, steering wheel, and mirrors. NHTSA is opening this AQ to examine the process and technical data on which Tesla relied when certifying the Cybercab and related issues. Among other things, NHTSA will consider the extent to which Tesla's certification depended on determinations that certain FMVSS are inapplicable to the Cybercab."

Potential delays and further share declines

The Cybercab's regulatory woes are reminiscent of what happened to Amazon's(NASDAQ:AMZN) self-driving subsidiary Zoox, which received its own NHTSA AQ in 2023 after self-certifying its own robotaxi for testing.

The investigation upended Zoox's path to commercialization. It didn't receive an exemption allowing it to charge customers for rides until this July: more than three years later.

Investors have already waited almost two years since the Cybercab's unveiling. They may not be willing to wait three more years for commercial operations to begin.

Now, Tesla's AQ won't necessarily take as long as Zoox's, but at this point, there's no way to tell when we might see full Cybercab service begin in Austin, let alone nationwide.

Given all this, it's unsurprising that shares plunged 6% today, finishing slightly below Wednesday's close. All told, the event was a slight net negative for Tesla's stock, which is down 21.4% so far this year.

What Tesla investors should watch out for

Despite Tesla's big share price moves yesterday and today, the business remains pretty much the same as it was on Wednesday. It's an electric-vehicle company planning to launch a robotaxi service and a line of humanoid robots. But right now, those are still only plans. And no amount of showmanship can bring those plans to fruition.

Tesla investors should take this incident as a reminder of how much the stock can move based on headlines and hype. They should look past all that to the underlying business when deciding whether to buy or sell.

John Bromels has positions in Amazon and Tesla. The Motley Fool has positions in and recommends Amazon and Tesla. The Motley Fool has a disclosure policy.