Could Tesla's self-driving software help the EV maker dominate the robotaxi market? Tesla's recent deal with Ford represents the company's ability to leverage its products to create partnerships with other automakers. Tom Narayan, RBC Capital Markets Lead Equity Analyst, Global Autos explains how robotaxis could come to represent up to 70% of Tesla's future value.
Video Transcript
JULIE HYMAN: All right, let's turn to another megacap here. We're talking Tesla. Officially, at least for the moment, snapping its 13-day winning streak. It did flirt with going in-- actually, it's up again right now. So it's not snapped that losing streak. It could be 14 days in a row, I guess, or was it down yesterday? I guess, it was down yesterday. All right. Never mind.
The gains grew. The EV maker's value by over $200 billion. For more on the future of Tesla, we're joined by Tom Narayan and RBC Capital Markets Lead Equity Analyst of Global Autos. He's with us here in the studio. Hey, Tom.
You were out with a note this morning, that made a lot of interesting hypotheticals about how big the proposition is for autonomous driving for Tesla. I mean, you make it sound like robotaxis are going to take over the world, and Tesla is going to have a big market share with this. Like, paint for us this future.
TOM NARAYAN: Yeah. And I think what's really pushed a lot of this to the fore is the deals that they've struck with Ford and GM, basically opening the supercharger network. And effectively, these two OEMs coming to Tesla and choosing their platform. And I think this shows how they could sell software to other OEMs.
The reason why robotaxis could be so transformational is their ability to save literally millions of lives. I mean everybody in this room probably knows somebody who's been affected by a car accident. Saving trillions of hours, opening up opportunities for mobility, the disabled.
There's so many countless reasons why cities in Europe and China, for example, are already talking about banning private cars in the future, saving space in real estate in the cities. There's so many great reasons and why regulators I think ultimately, will push this.
Now, this is far in the future. I do caveat that. But when you do the math on this, the potential for profitability of this is massive, especially versus just a car company.
AKIKO FUJITA: Well I mean, the point you make about robotaxis and the potential for autonomous vehicles, I mean, that feels like that's an argument that's been around for a while. And the timeline keeps getting pushed back.
But it feels like the approach from Tesla has changed. It used to be a lot more closed. This idea of essentially partnering with Ford and GM points to their now willingness, right, to be able to work with partners. How does that open up additional levers for the company?
TOM NARAYAN: I mean, it's exactly you're exactly right, right? People thought it was a walled garden of sorts. But, you know, Elon Musk said on his shareholder meeting, he said flat out, like, we want to be like Android and really open up the software to everybody. My modeling that I did this morning for my $305 price target only assumes that they reach, like, lows, highs, mid-single digit percentage penetration of robotaxis in China and Europe, only 25% penetration in the US.
It's really through licensing. That's what's driving the story. It's only them and maybe a couple of other folks that are really pioneering and leading the charge on this. Just look at the FSD software that we have today. That they're the only game in town that has as many miles on the road.
AKIKO FUJITA: But this idea of opening up the walled garden-- that's the analogy you want to use-- how much of that was driven by the competition that is increasing in the EV space, the price cuts. I mean, we sort of look at these partnerships as if this is an all-win for Tesla. But doesn't that also point to the needs that Tesla now has?
TOM NARAYAN: Yeah, I think this is always the goal. Always in mind, right? It was to get as many cars on the road as possible, prove the technology, and then open up and license it to everybody. The reason why they're cutting pricing is they want EVs to-- they want EV penetration to increase. If your neighbor has an EV, you're more likely to buy one as well.
The real denominator here is ICE cars and opening it up actually increases EV penetration and also increases the chance that you'll see that their software is probably the best, if not one of the best in the entire group. And there's only a handful of folks that are really doing this.
And so this industry, robotaxis, could be multiple trillion dollars of opportunity. And these guys are one of a handful of folks who are actually doing it.
JULIE HYMAN: So we're talking about your $305 price target. That's a 12-month price target. It doesn't sound like-- I mean, if you're looking at a certain percentage of EV penetration, of robotaxi penetration, that ain't happening for--
TOM NARAYAN: A long time.
JULIE HYMAN: --5 years, 10 years?
TOM NARAYAN: No, actually, so my--
JULIE HYMAN: 5 years.
TOM NARAYAN: Yeah, you're right. So my robotaxi model uses a 2040 estimate and discounts it back. My FSD is 2035 and discounts it back. But even when I do that, I still get 70% of the $305 is robotaxis. Just because the value is so big, think of how much you pay for Uber for a mile. And think of how much private car ownership is for you.
JULIE HYMAN: But they're so much--
TOM NARAYAN: You're still willing to pay more.
JULIE HYMAN: But given that, when you increase the time horizon, you increase the unpredictability. I mean, there are so many other players that could come in and take some of that market share. No?
TOM NARAYAN: Sure. That could definitely happen. But how many other players have a $800, $900 billion market cap that can use the capital? Maybe Google, you know, folks like that.
AKIKO FUJITA: That's my question, who poses the biggest threat right now?
TOM NARAYAN: Yeah, I don't know if I view it as a threat, really. It's my modeling only has them capturing 20% of non-Tesla robotaxi. There's still 80% that can go to other folks, right? There are other companies out there. You have Mobileye, there's Google Waymo, GMS Cruise. There's other players out there. But at this point, how many are as well capitalized?
We saw what happened to Argo last year. They couldn't just come up with the capital. You need a lot of capital to throw at this. And Tesla has that capital.
JULIE HYMAN: All right. We'll see what happens. Interesting stuff, Tom. Thanks for coming in. Tom Narayan is RBC Capital Markets Lead Equity Analyst on Autos.