Tesla stock (NASDAQ:TSLA) dropped on Tuesday morning as Elon Musk’s vision for the Tesla Network’s Robotaxi service was met by skepticism from Wall Street. Musk was quite confident in the recently-held Autonomy Day event, stating that Tesla could start deploying its autonomous ride-hailing vehicles by 2020. Wall Street did not seem to be impressed,
Cowen’s analyst Jeffrey Osborne expressed his reservations on Elon Musk’s ideas in a note on Tuesday, describing Tesla’s plans for its Robotaxi service as “half-baked.” The analyst also expressed his skepticism of Tesla’s capability to compete with established companies such as NVIDIA for hardware and Google for software. “We see a significant amount of technology and execution risk in the shift in strategy from competing in just electrification to Tesla also beating Nvidia in hardware, Google in software, and building a better ride-hailing service than current ride-hailing leaders. The Tesla Network Robotaxi plans seemed half-baked, with the company appearing to either not have answers to or not even considered pretty basic question on the pricing, insurance liability, or regulatory and legal requirements,” Osborne wrote.
SunTrust analyst Willian Stein was equally skeptical, though he did state that Tesla’s Robotaxi business could be financially compelling if the electric car maker successfully rolls out the service. “We are concurrently skeptical and hopeful about TSLA’s claims. If TSLA executes to plan, implications across semis/components are meaningful: positive for analog/mixed-signal vendors, mixed for digital vendors, negative for LiDAR vendors. Investors should recognize that, if the company achieves its autonomous driving goals, combining this with its already-achieved EV technology conspire to establish a ride-hailing service that could be quite financially compelling to both the car owner and the rider,” he stated.
Morgan Stanley analyst Adam Jonas admitted that Tesla’s presentation of its full self-driving technology was impressive, though he also noted that Elon Musk’s idea of completely removing the driver (signified by the removal of the steering wheel and pedals on vehicles) could take a very long time. “Tesla’s autonomy investor presentations conveyed impressive technological leadership but, in our view, left big questions around time-to-market and did not change our views on the impediments to removing the human driver in a commercial service at scale. Attention returns to a challenging 1Q. More data to back up safety claims is needed. We still think removing the safety driver will take many years (if not decades) to achieve at high scale,” he wrote.
Not everyone was highly skeptical of Elon Musk’s vision for a Robotaxi service. Loup Ventures managing partner Gene Munster noted that Tesla’s non-LiDAR approach to full self-driving could very well give Tesla a headstart over other companies pursuing autonomous driving technology. “We are more comfortable with Tesla’s camera-based (non-LiDAR) approach to autonomy. If correct, this approach could actually be preferred (safer, more reliable, efficient, better design) and afford Tesla a several-years headstart as other players unwind LiDAR from their solution,” he wrote in a blog post after attending Tesla’s Autonomy Day.
According to Munster, Elon Musk also estimated that Tesla could operate up to 10 million Robotaxis in about 10 years. With an estimated gross profit of $30,000 per car annually (and taking Elon Musk’s estimates at face value), Tesla could be looking at over $300 billion in gross profit in 10 years. That’s a huge opportunity for Tesla, and it could very well make the electric car maker as one of the most valuable companies in the world. Nevertheless, the Loup Ventures partner noted that “given investor optimism on the autonomy theme, we believe this is the right time for Tesla to raise money (debt or equity) to de-risk the story with additional working capital.”
As of writing, Tesla shares are down 0.28% at $262.01 per share.
Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.