A Tesla robotaxi business might not be quite as good for the electric-vehicle maker as investors expect, an analyst noted.
Thursday, RBC analyst Tom Narayan cut his Tesla stock price target to $227 from $293 while keeping his Buy rating. He’s adjusted his robotaxi math.
Tesla stock was down 1.5% in early trading at $1821.2, while the S&P 500 and Nasdaq Composite were both up about 0.3%
Tesla hosts a robotaxi event on Aug. 8. Investors expect to see what a Tesla robotaxi will look like. They will also expect to hear what progress Tesla is making with its artificial-intelligence-trained self-driving software.
Tesla sells advanced-driver-assistance systems today, but Teslas don’t truly drive themselves. CEO Elon Musk believes that creating a truly self-driving car would represent an incredible financial windfall for the company.
If it happens, Tesla could operate an Uber Technologies-like fleet of self-driving cars. It could also offer an Airbnb-type service where Tesla owners put their vehicles into a taxi network when not using them. Uber and Lyft could also integrate self-driving Teslas into their fleets.
Figuring out how big a robotaxi business can be is difficult. ARK Invest’s Cathie Wood believes it’s worth $5 trillion-plus by the end of this decade. Morgan Stanley analyst Adam Jonas values Tesla’s autonomy and software at roughly $500 billion.
RBC’s Narayan values Tesla’s robotaxi business at $414 billion, down from $627 billion.
“Previously, we ran two scenarios,” explains Narayan. One where Tesla “owned the customer through its own app” and another with customers owned by the likes of Uber. “Then we averaged the two revenue totals [for Tesla].”
Now he has other scenarios involving other vehicles using Tesla’s software, and other vehicles with Tesla’s software in different third-party robotaxi networks.
The new scenarios essentially represent Tesla’s software enabling other cars to drive themselves. It’s good for Tesla’s software business, but the company wouldn’t register a car sale, and there would be more people in the value chain earning money.
Eventually, Narayan sees a robotaxi charging passengers 81 cents a mile. At that rate, with his four scenarios, Narayan projects global Tesla robotaxi revenue of about $120 billion annually by 2040.
Predicting exactly how a robotaxi economy would develop is incredibly difficult — there aren’t large, ubiquitous networks operating yet. Potential complexity knocked off some $200 billion from Narayan’s Tesla valuation. That’s the bad news. The good news is he still sees the business worth hundreds of billions of dollars.
Coming into Thursday trading, Tesla stock was down about 26% year to date. Slowing EV sales have weighed on investor sentiment. Tesla is expected to deliver about 837,000 cars in the first half of 2024, down about 6% from the 889,000 delivered in the first half of 2023.