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Tesla (TSLA) has made great promises in recent weeks regarding its autonomous driving technology. CEO Elon Musk says the company will have a million robots on the road by the end of next year. According to Musk, the owners of Tesla will connect their cars to the Tesla network, which he says will earn them a substantial annual income.
As discussed above, the latest strategic focus for Tesla is a very risky gamble, especially in light of the extremely short timeline, which defies the expectations of virtually all non-Tesla autonomy experts, competitors of the company. industry and auto analysts on Wall Street. A new study from MIT has added another complication to the situation: according to the authors, autonomous taxis could prove to be more expensive to operate and manage than their competitors.
In other words, even if Tesla's questionable gamble is technologically profitable, it may not pay economically. This could be very bad news for the company – and for its so much touted stock market.
Great promises …
Musk has made a lyrical cry about the imminent advent of autonomous driving and the revolutionary changes it will bring to transportation through significantly reduced cost and reduced downtime. Indeed, Musk even claimed that its fleet of robotic robots would become a profit-making machine that would make Tesla a $ 500 billion company. These claims are based on a few key assumptions:
- The cost of operating a car in the Tesla network will be $ 0.18 per mile.
- Tesla will be able to charge $ 1 per mile.
- Tesla robotaxis will travel 90,000 km a year for 11 years.
- Tesla owners are expected to earn about $ 30,000 a year through the Tesla network.
Given that Tesla intends to bring into service its fleet of robotic robots by the end of 2020, one would think that the company has thought a lot about the true economic situation of the company. However, according to Musk's own comments during the recent Tesla Day of Independence Day, most of the alleged economic benefits have little basis in serious analysis:
"Oh, the prices. We have just launched some figures. I mean definitely plug any price that seems logical to you. We just randomly said, "Oh, maybe a dollar (per kilometer) … probably a dollar is conservative for the next 10 years."
It is a shocking attitude to adopt with regard to what is supposed to be a business unit that will drive the future of Tesla. Not surprisingly, this caused a number of reprimands from automotive journalists and industry analysts.
… built on big assumptions
Although Musk's numbers are clearly fanciful, the idea that autonomous vehicles could revolutionize transportation costs is not unprecedented. It is clear that many companies believe that autonomous driving technology will be very lucrative in the future, such as Google (GOOG), General Motors (GM), Ford (F), Apple (AAPL) , Toyota (TM), SoftBank. and others continue to invest tens of billions of dollars in their own self-reliance programs.
As a result of all these investments in autonomy, most media commentaries on the subject tend to assume that, if the technology works, it will revolutionize transportation costs. But it is far from certain.
To date, much of the cost-benefit research that can result from the advent of extended autonomy, such as that conducted by the Earth Institute at Columbia University, is based on very large assumptions:
"These results reflect a more abstract approach to the problem, showing that it was possible to reduce the costs of global mobility by replacing car owners with a shared autonomous fleet consisting of specialized vehicles benefiting of electric propulsion and a very small vehicle mass (since virtual vehicles are probably not accidental or need to carry an entire family). The reduction in fleet size, vehicle consumption and parking costs contributed to the striking finding that recreational vehicles would cost only $ 2 per day in ownership and operating costs.
Radical changes in consumption patterns, infrastructure, regulatory frameworks, etc. Earth's Institute's vision of a completely new mobility framework can not happen overnight. Indeed, such a change would take years, if not decades, to achieve. All aspects of the mobility system, from the roads to the car park and the ownership structure, should be reviewed. In addition, the technology itself will have to be proven with a level of functionality and security far superior to what is currently possible.
A hard dose of reality
A new study from MIT eliminates the dreams of future mobility architectures in favor of an analysis of the economics of robotaxia in the context of the current market reality. His results are quite surprising:
"Assuming that current market conditions persist – HAV technology (highly automated vehicle) is struggling to achieve price parity with conventional conduction vehicle (CDV) ownership."
The study reveals that today's manual taxis cost only $ 0.72 per mile, while robotaxis would cost between $ 1.58 and $ 6.01 per mile:
Source: Transport and Logistics Center, MIT
The key issue for Tesla, and any other potential robotaxi operator, is that autonomous taxis carry significant additional costs, such as additional insurance, remote monitoring and autonomous driving equipment. The economies of scale help somewhat, but still fail to put the costs on par with human-powered vehicles:
Source: Transport and Logistics Center, MIT
To actually achieve cost parity, robotaxis should be able to do one of two things:
- Increase usage, which averages 52% for conventional taxis, by 30%.
- Accept a profit reduction of 37% thanks to lower rates.
The first option is something that autonomous vehicle programs have been exploring for some time. According to Ford, increased use is the determining factor in the future viability of autonomous vehicles. The MIT study recognizes this fact, citing delivery work during off-peak hours as an option that can make robotaxia work. However, the additional logistical challenges associated with doubling a taxi as a delivery vehicle could jeopardize such potential benefits.
The second option is hardly more acceptable, especially in the case of Tesla, who expects his robotaxia to be extremely profitable in the near future.
Particular problems that plague Tesla
Tesla says its robotaxi business will increase its appraisal by an order of magnitude, in addition to generating an annual income of $ 30,000 per vehicle for individual homeowners. How Tesla can achieve this level of profitability, given what we know about the economics of the current transportation market, remains an open question.
Reducing the costs associated with taxi medallions, as Uber companies have already done (UBER) and Lyft (LYFT), could somewhat help. Nevertheless, these companies have found the profitability difficult to achieve. Uber and Lyft currently charge between $ 2 and $ 4 per mile on average, but that is still well below their respective costs, even though they do not have to pay for things like insurance. or maintenance. Tesla should bear these costs, in addition to expensive equipment and fleet management personnel.
Maintenance alone can undermine Tesla's robotaxi ambitions. Taxis tend to be very resistant vehicles, which can be maintained and repaired at a lower cost. Tesla vehicles, even the slightly less expensive model 3 sedans, do not match this bill. Indeed, as recently emphasized automotive analyst Edward Niedermeyer, Teslas is particularly ill-suited to the role of taxi:
"In fact, what makes Teslas so attractive to buyers of premium vehicles makes them extremely difficult to operate as taxis. In a competitive business focused primarily on achieving high utilization rates for each vehicle, loading time and repair delays can be a daunting task. The power and performance that sets Teslas apart from the competition are of little importance to taxis, which focus on durability and maximum uptime. "
Several car rental companies have learned this lesson the hard way. EC-Rent, a Dutch fleet company specializing in Teslas, has been forced to go bankrupt due to technical faults and expensive repair time. Umeå Eltaxi, a Swedish electric car rental company, also blamed Tesla for throwing out bankruptcy:
"Nothing worked. Tesla makes the worst cars. This was too serious, for the poor quality and when the nearest workshops are in Stockholm, the costs have become unreasonably high. "
Other fleet companies have also expressed dissatisfaction with Tesla. Shenma Zhuanche, a Chinese company specializing in high-end vehicles, went so far as to publish ads in Times Square to denounce widespread electromechanical breakdowns and other maintenance issues in its fleet. Tesla vehicles.
The investors view
Tesla has a lot to prove. Its calendar already defies almost all the opinions of the experts and the sector, which envisages a total autonomy in at least a decade. But even if he manages to achieve this technical miracle, he will then have to show how his robotics can actually offer the promised financial benefits.
The economic aspects of robotaxie are far from certain, even when they are applied to vehicles with the reliability and maintenance costs associated with conventional taxis. Applied to Tesla vehicles, renowned for its lengthy and time consuming maintenance, the prospect of cost – effective robotization seems rather gloomy.
With its pivot toward self-sufficiency, Tesla seems to think that it can divert the growing signs of declining demand in its core automotive sector, while spurring a revaluation as a mobility business as a service. Given what we know about the pace of technological development in this sector, as well as its future economic prospects, it seems more likely that Tesla will end up seeing its valuation crumble for failing to deliver on its monumental promises.
Disclosure: I am / we are TSLA short. I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I do not have any business relationship with a company whose shares are mentioned in this article.
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