Elon Musk explains how autonomous robotaxis justifies Tesla’s assessment

Don’t count Elon Musk among investors who think Tesla is overvalued, even though the stock rose nearly 700% last year and the company is valued at 213 times the expected earnings for 2021, according to FactSet.

During the automaker’s fourth-quarter earnings call on Wednesday, Tesla’s CEO said there was a “roadmap to potentially justify” its market capitalization, which topped $ 800 billion, making it made the fifth most valuable American company. Musk is now the richest person in the world, with a net worth of over $ 200 billion.

Musk’s valuation calculations are as follows: Suppose the company soon reaches $ 50-60 billion in annual car sales (the company generated $ 9.31 billion in automotive revenue in the fourth quarter and said that vehicle deliveries would increase on average by 50% per year in the future). As Tesla’s autonomous driving technology continues to improve, these vehicles will become autonomous robot robots, allowing use from 12 hours per week to 60 hours per week. Tesla could charge additional fees for these robotaxis, allowing the company to generate significantly more revenue per car. Basically it would be like bringing a software economy to the manufacturing-intensive auto industry.

Musk also announced that Tesla’s Full Self Driving package will be available on a subscription basis starting in the first quarter, rather than as a one-time $ 10,000 add-on, which will allow Tesla to start adding revenue. recurring while improving autonomous driving. Technology.

Even if usage only doubles, a valuation of $ 1 trillion may make sense, according to Musk.

“If you made $ 50 billion from cars, it would be like having $ 50 billion in extra profit, basically because it’s just software,” Musk said in the opening part of the call. Based on this formula, Musk claims that a multiple of 20 times earnings would lead to $ 1 trillion in market cap – “and the company is still in high growth mode.”

Less than nine months ago, Musk had a very different view of valuing the company. In a May 1 tweet, he said that “Tesla’s share price is too high,” a comment that pushed the shares down 10%. Since then, the company’s market capitalization has jumped over 450%.

It’s possible that investors are already speculating that Tesla’s cars will eventually turn into revenue-generating robotaxis. But the company is not yet close to having those capabilities, and Musk has a history of over-promising technological innovation.

For example, when Tesla began discussing autonomous driving technology in 2016, Musk said the company would complete a hands-free trip across the United States by the end of 2017. The company has yet to completed this mission.

Currently, Tesla’s full automatic driving features include Smart Summon, which allows a driver to call their Tesla to move from a parking spot to where they are, and Navigate on Autopilot, which can steer the car from a freeway on a ramp to a ramp stop, making the necessary lane changes along the way.

But despite the name, the Full Self Driving Pack still requires drivers to keep their hands on the wheel and stay alert at all times. A Munich court ruled last year that Tesla had misled consumers about the capabilities of its automated driving systems and banned the company from including “the full potential of autonomous driving” and “Autopilot included” in its advertising media.

While Tesla has missed many of its own projections for autonomous driving technology, Musk continues to insist it is coming. “I really don’t see any obstacles here,” he told an analyst on the call who asked about the company’s progress.

Tesla shares fell 5.5% in extended trading on Wednesday after the company reported earnings that were missing analysts’ estimates even as earnings were better than expected.

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