Actions of Tesla (NASDAQ: TSLA) they had such a successful year in 2020 that the company is now worth over $ 400 billion, more than many of the major automakers combined. Different investors have differing theses as to why Tesla is so valuable, ranging from the company being a high-growth, high-margin auto stock to its future as a self-driving company with software-level margins. But the only theme is that there is a future for Tesla that is much bigger and more impactful than where it is today.
When a stock goes up like Tesla’s, it puts a lot of pressure on the company to keep growing to meet investor expectations. But there are flaws in some of the growth theories, and there is one upstart in particular that Tesla should worry about in 2021
Breaking down Tesla’s growth thesis
Let’s take a look at three ways investors commonly think Tesla will disrupt the auto industry. These theses come from ideas that Elon Musk has affirmed himself and from the long-term vision he has for Tesla. But each of them has flaws.
Thesis 1: Tesla the robotaxi company
Let’s start with the idea that has often been cited as why Tesla is incredibly valuable: his ability to build a robotaxi company. The idea of Tesla as a robotaxi operator has been around for years. Musk teased the idea, suggesting Tesla owners could send their vehicles to work as taxis for 100 hours a week. He even suggested the service would earn a Tesla up to $ 250,000.
This is far-fetched on several levels. The first long blow is that Tesla owners who spend $ 50,000 or more on their vehicles will send them out unsupervised to pick up bikers for hundreds of hours a week. Not only would there be wear and tear on the vehicle, but who knows what people will be doing in someone else’s vehicle unsupervised. It seems extremely unlikely that affluent Tesla owners will want to risk that investment to earn some cash on a robotaxi service.
The other shortcoming in this concept is that Tesla doesn’t have the ability to drive autonomous today. Its autopilot is a smart cruise control option for highways, but it can’t drive a car for miles on its own. In fact, Cruise has driven more fully autonomous miles than Tesla. According to data provided to California, where both companies are headquartered, the cruise vehicles traveled 831,040 miles autonomously in 2019, compared to Tesla’s 12.2 miles completely autonomous. You read that right: Cruise ran 68,118 times more autonomous miles on California roads than Tesla.
If self-driving ride sharing, or a robotaxi service, is going to be common and cheap, it makes much more sense to use a purpose-built vehicle with a dedicated charging infrastructure than to expect car owners to lend their vehicles to the service. That dedicated service is exactly what Cruise is creating with Cruise Origin.
Thesis 2: Tesla the software company
Another option would be to sell Tesla’s autonomous driving technology to other manufacturers or even Tesla customers. Indeed, this could be a software-as-a-service model.
The problem here is that Tesla is not the company most manufacturers would use to power a self-driving fleet or self-driving functions on consumer vehicles. It mostly relies on vision to detect how to drive a vehicle, while most companies are adding redundancies such as laser-powered LiDAR so the vehicle can drive in rain, snow, and even “see” objects that can get confused with it. background. That inability was the cause of a 2016 fatal accident involving a Tesla in Florida.
There are also companies better suited to supplying this technology to car manufacturers. According to the Navigant management consultant’s assessment of autonomous driving technology, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) Waymo, Ford (NYSE: F) Autonomous vehicles and cruising are all rated much higher than Tesla. In fact, there are more than a dozen companies rated for better self-driving technology than Tesla.
Third-party sales seem highly unlikely given the number of companies building this technology and the incentive they all have to beat Tesla.
Selling to Tesla customers may sound interesting, but again the market seems limited. Tesla recently raised its “fully autonomous driving” option to $ 8,000, and Musk said the package’s value will eventually be over $ 100,000. Currently, the package is by no means fully autonomous, but rather a limited self-driving package.
Again, if autonomous driving is Tesla’s value, wouldn’t it make more sense to build a fully autonomous vehicle? And if you’re planning to build a fully self-driving vehicle, why not share the costs of that vehicle among hundreds or thousands of people to reduce travel costs for everyone rather than providing a package that makes vehicles more expensive for customers?
Thesis 3: Tesla the best manufacturer in the world
The latest bullish thesis that could hold back some water is the idea that Tesla will simply win as an electric vehicle manufacturer. And it might be right. It has multi-year leadership across the industry and has built a reseller network that allows it to gain more value from each sale, increasing margins.
What I’m wondering is how long that lead will last. Sure, legacy automakers like it GM (NYSE: GM), which owns most of Cruise, and Ford may have a hard time catching up with Tesla, but they are trying, with new electric vehicle offerings like the Chevy Bolt and the all-electric F-150 recently announced by Ford.
An even bigger concern could be the emergence of fully electric vehicle companies. Rivian, NIO, Nikolaand Lucid Motors are just some of the manufacturers that have appeared in the last decade. They’re nowhere near Tesla’s scale and most are still developing manufacturing capabilities, but they’re all EVs from scratch. This will erase some of Tesla’s inherent advantages over traditional automakers.
Tesla has not yet become the world-class manufacturer it hoped to be, battling quality issues to date. Traditional and early stage car manufacturers could make products that are just as interesting and of even higher quality. The world-class, high-margin manufacturer’s thesis may be short-lived for Tesla.
How Cruise could override Tesla
The biggest problem I see with Tesla is that it’s not best positioned in the area it considers most valuable: autonomous driving.
While Tesla is taking small steps towards building its fully autonomous drive system, Cruise is making full range a reality. Elon Musk has promised full autonomy for years but has not kept it. Cruise is ready to do so with a ridesharing service in San Francisco, one of the toughest driving environments in the world, as early as next year.
What’s crucial about this self-driving guide is that Cruise has the business model behind it. Tesla still sells cars to people who plan to own them for years or even decades, and hopes to add high-margin standalone software to the purchase. Cruise is completely revolutionizing the vehicle ownership model. You can see it with Cruise Origin’s design, which is meant to be a vehicle where people sit and socialize as they go from point A to point B. No upfront costs, garage space, charger installation, or searching for charging stations during a long journey: just get on and off.
Designing a fully autonomous ride-hailing vehicle allows Cruise to eliminate bells and whistles that add costs to Tesla. There’s no need for fast acceleration, no color options or fancy rims. Projects can be simple, efficient and repeatable. And Cruise said the Origin will be designed to travel over 1 million miles.
Cruise is what Tesla wants to be
Elon Musk and Tesla certainly think fully autonomous driving is the future and have been making fun of the technology in their vehicles for years. But Cruise is far ahead in technology so far, as are competitors like Waymo.
But the main reason Tesla should be concerned about Cruise in 2021 is the launch of Cruise Origin and its ridesharing service. If successful, autonomous ride-hailing could make vehicle ownership obsolete for hundreds of millions of people around the world. And whether it’s a physical product or self-driving software, car sales is ultimately where Tesla makes money.
Innovation and disruption can take many forms, and I think the disruption coming for Tesla is in the form of a company built to make car ownership obsolete. The cruise is up to par and 2021 will be a big year for the company looking to change transportation forever.