Social Security’s 2025 COLA unveiling isn’t the main event on Oct. 10 — For Wall Street and the rise of artificial intelligence (AI), it’s…

For the more than 68 million beneficiaries who currently receive a Social Security check each month, today is big business. In less than four hours, the September inflation report will be released by the US Bureau of Labor Statistics, and the Social Security Administration (SSA) will have the last piece of the puzzle needed to calculate the 2025 cost of living adjustment (COLA).

The Social Security COLA is the tool the SSA uses to increase benefits in most years to ensure that recipients do not lose purchasing power. This will likely mark the fourth consecutive year of above average “growth”.

But Oct. 10 is more than just the unveiling of Social Security’s 2025 COLA.

It seems that nothing has impacted Wall Street’s major stock indexes more this year than the rise of artificial intelligence (AI). The ability of software and AI-based systems to become more proficient over time, and perhaps even learn new skills without the need for human intervention, gives this technology utility in almost all sectors and industries.

while NvidiaIts quarterly operating results were mainly the star of the AI ​​revolution, the main event for Wall Street today, October 10, is the electric vehicle (EV) maker adze (TSLA -1.41%) hosting its robotaxi event.

Tesla’s Model 3 is its best-selling sedan. Image source: Tesla.

Tesla is trying to drive innovation and its valuation

Tesla is no stranger to breaking down barriers. It is the first automaker in over half a century to successfully build from the ground up to mass production. Elon Musk’s company has the ability to easily surpass 2 million electric vehicles produced annually, should demand demand it.

It is also the only pure-play EV maker that has been consistently profitable. If Tesla generates a generally accepted accounting principles (GAAP) profit this year, it will mark its fifth straight year in the black. Most EV makers are looking for their first quarter of profitability, let alone recurring profits — and that includes the EV divisions of the legacy Detroit automakers.

But Wall Street is often forward-looking; and all eyes today are on Tesla’s robotaxi ambitions.

Autonomous travel is an emerging opportunity with otherworldly potential. Ark Invest managing director and chief investment officer Cathie Wood predicts that Tesla will generate most of its sales and earnings before interest, taxes, depreciation and amortization (EBITDA) from robotaxis relatively soon.

Based on Ark Monte Carlo analysis, Tesla is projected to generate $400 billion in EBITDA from $1.2 trillion in sales by 2027. About 63 percent of net income and 86 percent of EBITDA will come from robotaxis, according to Wood’s Ark Invest.

Tesla’s robotaxi event, which was previously scheduled for Aug. 8 but was pushed back to address a design change, will begin at 7 p.m. PT and will focus on the autonomous capabilities of Tesla’s new operating segment. Given Musk’s repeated claim that Tesla collects a lot of vehicle data, professional and everyday investors will focus on the safety data as well as Musk’s estimates of how much robotaxis will add to the the results of his company.

Given that robotaxis expects to provide a considerably higher operating margin than Tesla can generate simply by producing and selling electric vehicles, this event had major long-term profitability implications and has played a large role in the rally we’ve seen in Tesla stock over the past few months.

Image source: Getty Images.

Elon Musk has a habit of over-promising and under-delivering

While there’s a lot of hype for Tesla’s robotaxi event (and with good reason), it’s important to keep in context that CEO Elon Musk has a terrible habit of over-promising and under-delivering when it comes to game-changing innovations or advancements for his company.

For example, the famous all-electric Cybertruck was revealed in 2019, and according to Musk’s words during his company’s fourth quarter 2021 conference call, it was scheduled to enter production in 2022. Finally, the launch of the Cybertruck was delayed until late 2023, with early sales largely disappointing Wall Street.

Delays have been the name of the game with Tesla’s gigafactories in Austin, Texas and Berlin-Brandenburg, Germany as well. Both gigafactories were expected to open in 2021, but ultimately did not begin production until April 2022 and March 2022, respectively. To add insult to injury, Tesla is not operating at full production capacity given the recent weakness of demand for electric vehicles.

But perhaps Musk’s most damning over-the-top promise was his insistence that Tesla is “one year away” from full autonomy — meaning Level 5 Full Self-Driving (FSD). Musk has backed this claim of being a year away from full autonomy for a decade. However, Tesla has yet to advance beyond Level 2 FSD, which requires drivers to be alert and ready to take control. Meanwhile, Mercedes-Benz has received Level 3 autonomy approval in select states and is working on Level 4 autonomous driving solutions.

In October 2019, we witnessed Musk proclaiming, “Next year, we’ll definitely have over a million robotaxies on the road.” Five years later, there are exactly zero Tesla robotaxis on public roads.

Musk has made a laundry list of far-reaching promises about the innovations to come at Tesla, many of which are included in his company’s inflated stock valuation. But when push comes to shove, very few of these predictions have come to fruition — and the vast majority have been on a delayed timeline.

In other words, the actions will be away more important than words when Elon Musk drives home Tesla’s robotaxi ambitions later today.

But wait, there’s more

However, Musk’s tendency to over-promise and under-deliver isn’t the only problem facing Tesla right now.

As competition has grown significantly in the electric vehicle space, North America’s leading electric vehicle maker has become more aggressive with its pricing. Since the start of 2023, Tesla has significantly reduced the selling price of its four main production models (3, S, X and Y) on more than half a dozen occasions. These price cuts are a direct reaction to weaker consumer demand and are designed to keep inventory levels low.

Unfortunately, Tesla’s significant price declines have not been able to prevent global stock levels from rising. At the end of March 2022, the company had just three days of global vehicle inventory (essentially, the inventory of new vehicles at the end of a quarter divided by the relevant quarter’s deliveries). In June 2024, supply days increased to 18.

In addition to the stock increase, Tesla’s operating margin took a hit as the company aggressively cut the selling price of its electric vehicles. Operating margin fell from 17.2% in the quarter ending September 2022 to a pedestrian 6.3% starting in the quarter ending June 2024.

Among the many reasons Tesla commands a massive valuation premium over legacy auto stocks is the belief that it will be substantially more profitable on each vehicle. An operating margin of 6.3% is historically weaker than what legacy automakers offer.

Tesla’s profits increasingly come from unsustainable sources. In the second quarter, about two-thirds of the company’s pretax income can be traced to regulatory tax credits sold to other automakers and interest income earned on its cash. In other words, Tesla generates far less revenue from its actual operations than investors might realize. This makes the company’s already inflated valuation even more egregious.

Suffice to say, Tesla has no room for error with its robotaxi event or launch timeline.