Tesla (NASDAQ:TSLA) has faced a tough year with slower EV demand in the US and higher competition in China. The biggest hope for shareholders is that Elon Musk will fulfill his promise to turn a Tesla group in the axis of the robot to allow the company to get a large fee. My overall investment thesis is Bullish on stocks, but the robotaxi catalyst may still be a long way off.
Launch of Robotaxi
Elon Musk has promised that Tesla will launch a robotaxi service in the future back to 2016. The EV company currently offers FSD (full driving) software offering up to Level 2 service, but a true robotics service will involve Level 5 where the driver is not present and the vehicle fully controls the driving function.
After a day full of drama, Musk announced at X that Tesla will unveil a robotaxi business on August 8, or about 4 months from now. Although, the CEO did not list the year, but the concept is clear this year.
Tesla has already hosted many robotaxi events, so investors probably shouldn’t be too excited about this news. Cruise Automation, owned by General Motors (GM) soon turn off their robotaxi business offering services in many cities. The company had its license restricted in San Francisco after an accident caused by a human driver and a pedestrian involved a robotaxi service towing a woman who had crashed into Cruise’s car.
As Gene Munster from Deepwater Asset Management discusses, even if Tesla has full Level 5 robotics technology, the service won’t likely get regulatory approval until 2027. The biggest hurdle may be government approvals, not the technology.
Although Tesla has long discussed complete autonomy, the FSD service is only Level 2 due to driver management requirements. The company announced that the FSD service has now driven 1 billion miles and is in good condition in the last year with a hockey stick move after the recent release. 1 month free trial.
FSD costs $12/K or customs can start a subscription at $199/month and seems like a great value considering the service is only Tier 2. The problem with these FSD miles is that regulators won’t count them as independent for testing purposes because drivers. they have to keep their hands and eyes on the car.
The FSD miles are of course helping Tesla build the platform and update the service, but the robotaxi service will need regulatory approvals to be licensed without a driver in the vehicle and each city/state has its own regulations. According to California DMVTesla has 0 test miles recorded while Waymo had 3.7 million last year.
Large Investment Estimates
ARK Invest (ARKK) bought into the robotaxi concept and estimated Tesla could be worth $2,000 expected in 2027 depending on the launch of the service. The point is to take the EV company from an EV manufacturer to an independent service provider.
Tesla was projected to halve the car’s ASP to just $26,000 while significantly increasing sales from just 1.3 million units in 2022 to 20.7 million in 2027. EV revenue would still grow from $70 billion to $528 billion over that period, but the company would more than . double the revenue with the robotics business generating $613 billion in revenue alone.
The model suggested Tesla had a 63% chance of launching a robotaxi service in 2024 or 2025. ARK Invest gave a very low probability for the service starting after 2025.
The entire value comes from turning a bunch of cheap cars estimated to cost $25K to make into money-making robots. Much of the market play on Friday was whether Tesla still plans to make the Model 2.
The pre-Covid models It was Tesla’s goal to reduce the cost of trips from water transport services such as Uber (UBER) by 50% to ~$1 per mile. The volume of trips will increase with lower costs and reduced need to own a vehicle with a robotic axis.
A large part of the costs of driving services is the driver. The holy grail of this industry is removing this cost from the design as Tesla has estimated the ability to produce a car with additional AV technology at a very low cost amid fears that the cost of the car would rise.
Under Ark Invest’s model, Tesla would generate ~$0.50 in revenue per mile and generate a profit of $0.25. Most of the financial details would have to be worked out based on service life and the EV company’s ability to produce low-cost EVs and a robotaxi service capable of operating up to 90K miles per year and 1 million lifetime miles. In addition, big questions surround whether Tesla still aims to sell cars to property owners who join the robotaxi service. Tesla would collect the revenue from the FSD service purchase for $12K now and share in the platform revenue maybe 50/50 based on the above model.
If anything, travel costs have only increased in the last 4 years. According to AAA research, the costs of car transportation services $2+ per mile in big cities while owning a car costs only about $1 per mile.
Investors should watch the robotaxi launch event on August 8 with open ears. The stock is amazing as it is down almost 60% from the high price from more than 2 years ago. Musk always has something in the works that could add value to Tesla and his determined leadership could help push some of the regulations that hit Cruise’s service.
Due to the downturn in the EV market, the stock is not exactly cheap at the moment at 40x 2025 EPS targets of $4 and more than 4x sales targets. Robotaxis is indeed a holy grail for the automotive industry and Musk seems more determined than others to make Tesla attractive from this side, even though the business is not likely to be launched anytime soon.
To take
The main takeaway for investors is that investors rarely do well investing against Elon Musk. Tesla launching a robotaxi service could provide the next big gain for the stock with ARK Invest projecting it to $2,000 from the current price of just $165, more than a 1,100% gain. The problem is that Musk has long promised self-driving services and Tesla has yet to deliver anything close. Not to mention, the EV company seems to have done nothing to allow regulators to license the robotaxi service under any circumstances.
The stock is attractive on a big dip here, but investors need to understand the full launch of the robotaxi service is likely several more years away. Buy Tesla, but don’t buy stocks for AVs.