One of the key points of contention in the Tesla (TSLA) debate at present is Elon Musk's promise of robotaxis on American roads next year.
What it all comes down to in the end is whether or not this is a promise that can be kept and, maybe more importantly, if it's feasible at all.
"I feel very confident predicting that there will be autonomous robotaxis from Tesla next year - not in all jurisdictions because we won't have regulatory approval everywhere," Musk said last month. "From our standpoint, if you fast forward a year, maybe a year and three months, but next year for sure, we'll have over a million robotaxis on the road."
"Robotaxis will be an extremely high demand for a very long time," he added.
ARK Invest, a prominent bullish shareholder that has set a $4,000 price target for Tesla shares, believes it is indeed feasible...just maybe not next year.
"We estimate that regulators will require between 1 billion and 10 billion miles of data to prove that the system has a lower error rate than humans, and that Tesla will amass those miles in the 2-3 years after Autopilot is feature complete," a report authored by company analysts Tasha Kenney and Sam Korus states. "If its vehicle owners were to engage Autopilot for roughly 35% of miles driven, then Tesla could accumulate 10 billion miles in three years."
While next year might be a stretch by their analysis, it is worth it in the long term from their perspective.
"Given the $1 per mile price point and a 30% platform fee, Tesla could achieve software-like margins on its autonomous taxi platform, with 50% of net revenues flowing to operating earnings and roughly 70% of operating earnings translating into cash," the report adds.
With the bullish take on margins, a key sticking point for current competitors in the taxi industry, the value for shareholders is proposed to tick in at eye-watering levels.
"The enterprise value of Tesla's autonomous taxi business would scale to $800 billion in the bear case for EVs and to $1 trillion in the bull case," the analysts proposed.
Yes, you read that correctly, the argument is that Tesla's taxis would be worth more than Amazon (AMZN) in their bull case.
The underlying thesis is that autonomous driving will sweep the world and key participants in ridesharing like Uber Technologies (UBER) and Lyft (LYFT) would be necessarily pushed out by Tesla, leaving it to dominate transportation worldwide.
The report also adds the caveat that a build-out of relevant capabilities will likely require significant capital raises in coming years, which could temper growth to their bull case as the balance sheet remains a noisy issue.
Not So Fast My Friend
Short-sellers and skeptics are not nearly as sold on the idea.
One key sticking point is the capability of Tesla's autopilot function at present.
According to Consumer Reports, Tesla's Navigate function found in current models is no better than humans. The consumer protection agency noted that the feature cut off cars without leaving enough space and passed other cars in ways that violate traffic laws, forcing drivers to intervene in order to prevent the system from making poor decisions.
"The system's role should be to help the driver, but the way this technology is deployed, it's the other way around," Jake Fisher, Consumer Reports' senior director of auto testing said. "It's incredibly nearsighted. It doesn't appear to react to brake lights or turn signals, it can't anticipate what other drivers will do, and as a result, you constantly have to be one step ahead of it."
Given the scathing report, it would appear unlikely that regulators allow 1 million vehicles operated by the system to rule roadways across the country.
Many Tesla watchers have begun to take a dismissive stance on the grand claims by Tesla and its lauded CEO which seem to shift constantly.
"Analysts ripped Musk's "1 million Tesla robotaxis on the road in 2020" idea in a rare public rebuke of his genius.," Real Money contributor Jim Collins pointed out. "In my private conversations with some of those same analysts, a more humorous - and completely dismissive - tone emerged. Very influential people are laughing at Musk now."
"We think Tesla erred by externally targeting level-5/urban RoboTaxis next year, a claim that ultimately hurt credibility," Citi analyst Itay Michaeli said in a note to clients on Tuesday, backing up Collins' claim. "We appreciate the culture of aiming high (which might also attract talent), but claiming L5 urban arguably masks what we think might actually be a more credible & unique Tesla AV path."
In short, as Carl Sagan once said, extraordinary claims require extraordinary evidence. As of yet, there is little evidence Tesla can deliver on its claims.
Given the balance sheet issues, it will remain to be seen if Tesla can wade its way through the noise to ARK's extraordinary price targets on the effort that remains likely years away.
