Will self-driving cars make Tesla a $ 500 billion company?

May 18, 2019 by Carolyn Fortuna

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In May 2019, the online investment blog, Seeking Alpha (SA), published another article that considered Tesla a credible investment. By writing under the pseudonym "Sunset Analysis," the author refuted Tesla chairman Tesla's statement that autonomous cars could make Tesla a $ 500 billion company. Calling it a "bold statement that ignores competition analysis in the area of ​​autonomous cars," Seeking Alpha resisted in its scheme to make fun of everything that was Tesla.

The author cited 3 main reasons why he / she had determined that Tesla's future financial position was bleak: 1) an unlikely exponential increase in Tesla's valuation, 2) significant competition in the area of ​​autonomous cars, and 3) the need to issue debt to finance development. What this article did not recognize, however, is the existential crisis that threatens the builders of old cars in the context of the forthcoming adoption by the mass of electric vehicles and technology of assistance to driving. While all the indicators point to a strong increase in the number of EVs from the age of 5 and continuing in force in 10, 15 and 20 years, the sector is changing rapidly.

Tesla already enjoys brand recognition, proprietary technologies and industry-leading manufacturing processes, owner and expert satisfaction, and proven ability to translate this vision into viable business practices. And Tesla's ability to see and pursue the activity of autonomous driving so strategically differentiates it from its competitors.

Tesla, a company that values ​​innovation alongside risks, will become the norm, beyond other companies in the automotive and technology sector. The Seeking Alpha article once again missed the proverbial note regarding Tesla's gasoline, innovation and tax potential.

Musk's latest detailed commentary on Tesla's autonomous driving potential was presented at an event on April 22 for investors at Tesla's headquarters in Palo Alto. The story included a not-too-distant scenario in the future in which autonomous Teslas vehicles would compete with brands such as Waymo, Lyft and Uber.

Musk described the company's progress, which by mid-2020, will improve Tesla's autonomous system to the point where the driver's attention will no longer need to focus on vehicle control. As part of this evolution, Tesla will introduce autonomous taxis in 2020 in parts of the United States and Tesla owners will be able to add their cars to this Tesla sharing network.

Described as having full autonomy and the ability to drive themselves on the roads, regardless of weather conditions or other dangerous conditions, such taxis would exceed the self-driving functions available today. all the cars on the road. "We will have more than a million robotsaxis on the road," Musk said. "In a year, we will have more than a million fully autonomous cars, with software … everything."

He added that the Tesla robotaxis could potentially generate $ 30,000 a year in profits for homeowners, which would be facilitated by the low maintenance required by vehicles (Tesla's goal is that these cars last at least a million miles). Tesla's automotive, solar and energy companies are only a fraction of their value, Musk said, adding that the autonomous driving systems under development would earn Tesla $ 500 billion.

The current market capitalization of the company is approximately $ 42 billion.

Tesla Valuation as Art & Science

The value of Tesla is disconcerting, I will grant it to you. Most financial advisors ask ordinary investors to take a long look at the choice of shares to land. Remember that Tesla's IPO price in 2010 was $ 17. Early on, Musk promised that advanced driver assistance capabilities on Tesla vehicles would continue to improve until reaching a complete automation plateau. In 2019, the fiscal climate was such that, according to Musk, "buying a car today is an investment for the future".

He described the purchase of a Tesla as "buying an asset that is gaining value," which is completely contrary to most schools of thought when it comes to auto purchases, which are generally one of the most important. depreciate assets (if not the most absolute depreciating asset), most people never buy. Importantly, Musk predicted that some Tesla models would reach $ 250,000 over the next three years as autonomous driving skills become ubiquitous. He then spoke of "the possibility of earning income with your Tesla as a supporter of the underlying value of the car". However, he acknowledged that "the value of this program has not yet been highlighted".

Writers in search of alpha make fun of these notions about the value of Tesla. They argue that the necessary software upgrades are incomplete. They say that Tesla's price increase will result in lower purchases. They argue that operational issues, including accountability and trust with Tesla Network customers, will be obstacles that can not be overcome.

Oh, you have little faith.

A more optimistic common view suggests that Tesla's technology-driven products, luxury cars, and the single CEO make the Tesla stock a popular choice among risk-averse investors. Most agree that autonomous driving is the next big breakthrough, and analysts like Canaccord Tenuity and ARK Invest believe that TSLA software has "an almost insurmountable lead" over their competitors.

Tesla is the only all-electric manufacturer of any size, which will be a huge advantage if more and more people opt for electric vehicles. In addition, the advent of the popularity of autonomous cars is an additional benefit for Tesla, research and development of autonomous driving software being one of the main reasons for this optimism.

Major competition is exactly what will make Tesla a $ 500 billion company

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Another recent article by Seeking Alpha, quoted and paraphrased by an MIT study, states that "autonomous taxis can be more expensive to operate and manage than their peers of human origin". Well, I know that it is difficult to digest the academic white papers, but the abstract that offers insight into the study indicates the following:

"In a single-user model, we estimate that capacity utilization rates should be improved by almost 100% and margins reduced by 37% for autonomous vehicles in order to achieve cost parity with their conventional counterparts. In a multi-user model, achieving cost parity requires a 30% increase in occupancy and a 75% increase was a higher cost proposition offered to encourage shared use of vehicles. autonomous compared to conventional vehicles. We conclude that taking into account the opportunity costs of driving is an integral part of the widespread adoption of a technology that can significantly improve public health outcomes. "

Therefore the real The conclusion of the MIT study indicates that companies offering self-driving options will have to make autonomous vehicles more affordable to establish public consumption patterns. This makes sense, as all social change takes time, as direct experience opportunities are often the key to systemic change. MIT researchers offer examples such as self-sustaining food deliveries in the city, monetization of user behavior and other income gains from existing ancillary sources that can offset losses associated with the supply of lower rates.

The Seeking Alpha article acknowledges that the Tesla Autopilot has enabled the company to test various features across a wide variety of geographic areas and to collect a wide variety of data across a wide range of traffic scenarios. As with all R & D, we still do not know how Tesla's technological progress will compare to that of other companies. For now, the Seeking Alpha piece concedes that the chip Tesla appears ahead of the competition. (Duh).

Tesla's need to issue debt to finance development

Another Seeing Alpha article criticized Musk's relaxed approach to calculating numbers at Independence Day, saying that "most of the claimed economic benefits have little basis in serious analysis. ".

Musk: "Oh, the prices. We have just launched some figures. I mean, definitely plug the price that seems logical to you. We just randomly said, "Oh, maybe a dollar (per mile) … probably a dollar is conservative for the next 10 years."

The replica of the author in search of Alpha? "A shocking attitude. … The figures of Musk are clearly somewhat fanciful. The idea that autonomous driving will revolutionize transportation is "far from certain," citing a 2012 study – so old in the field of research on this topic, and the year of the release of the Model S. Again, if we take the time to read the 2012 report carefully, the study actually indicates that "autonomy" is able to provide better mobility experiences at a dramatically lower cost in a wide range "and" offers substantial benefits in terms of sustainability through improved road safety, reduced congestion, improved energy efficiency, reduced emissions, improved land use and improved of equal access. "

The article by Seeking Alpha claims that Tesla competes with companies that "can afford to spend a lot of money on development and have specialized knowledge in specific industries involved, such as manufacturers." fleas ". "Contrast Tesla with 100 billion-dollar competitors," mocking Seeking Alpha because it issues debt and equity to support its operations.

However, this argument does not track the company's likely growth because of its well-placed positioning, its track record of success, attractive for autonomous vehicles, and its success in this segment of the market. Even Morgan Stanley notes that Tesla has rising production rates and a healthy resale market (market leader). (In a counter-intuitive statement, they add that the high rate of adoption by consumers so far could hurt the brand's attractiveness and decrease the demand for its cars, a strange idea that we do not have. We will not even go deeper here.)

The problem with constant depreciations of Tesla Valuation

Seeking Alpha's founder, David Jackson, calls Seeking Alpha "a research on equity in outsourcing," in which contributors are "real investors rather than Wall Street analysts." and individual journalists (who) bring their own prejudices about what they write. Is this bullshit or what? Jackson's argument is based on a logical mistake: are biased reports not more easily concealed when authors are expected allowed to hide their true identities?

Another problem, tackled in a recent Tesla podcast with a former Seeking Alpha contributor, is that it do not an open platform. Galileo Russell indicates that there appears to be regular censorship on the site, and other people CleanTechnica heard about said the same thing.

With the recurring paradigm of Tesla's plans as "grandiose", "naïve" and "overestimated", critics like those who write for Seeking Alpha have a lack of imagination. In search of innovative and creative solutions to large-scale problems, Musk asks his employees to apply the first principles method, whereby individuals assimilate information to its most basic idea and reason it from there. . As Musk explained at a TED conference in 2013,

"We go through life by reasoning by analogy, which essentially amounts to copying what others do with slight variations. And you have to do that. Otherwise, mentally, you could not spend the day. But when you want to do something new, you have to apply the [first principles] approach."

Will the potential for autonomous driving make Tesla a $ 500 billion company? A conservative bet says, "maybe." If anyone was certain, he would put all his money in Tesla [TSLA] Today, but the fact is that, despite strong criticism from some parts of the Internet, it is quite possible that Tesla actually reaches this extremely high financial threshold. In doing so, society will still face critics whose livelihoods depend on the status quo of the auto industry. Degrading the image of Tesla is a hobby too fascinating for so many media and investors that it will be difficult to give up.

Note: When I asked Tesla to comment on this story, a spokesman for Tesla said that the company had nothing to share at that time, beyond what it had shared during the day of investor autonomy.

Images via Pixabay, without copyright, an author Pixabay mabout and presentation of Tesla 's Day of Independence.

Keywords: Elon Musk, EV Sales, Tesla, Tesla Autonomous Cars, Tesla Full Self-Driving, Tesla Network, Tesla Self-Driving Cars, Tesla Shares