Tesla robotaxis are worth $700bn, or $870bn, or zero

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We believe robotaxis (and autonomous vehicles in general) could potentially transform society more than anything else in our lifetimes. They could save millions of lives and trillions of hours. We believe this fact alone should motivate regulators to support their development as we anticipate private cars being banned in many cities around the globe. Importantly, given how much value and convenience they offer and low pricing, given the elimination of the driver, we see consumers switching away from private car ownership.

Yep, it’s another vapourware-based Tesla buy note. This one’s from RBC Capital Markets, which puts a $305 price target on the stock and says driverless vehicles that are safe to let loose on public roads can account for 70 per cent of that value.

We conservatively assume 25% Tesla robotaxi penetration in the US, 8% in Western Europe, and 7% in China. We also max out our licensing penetration assumption at 20% of non-Tesla robotaxis globally.

Analyst Tom Narayan sets out his argument in today’s episode of RBC’s Industries in Motion podcast, having published a note on the theme earlier this week. Here’s how his $1tn+ valuation breaks up:

• And for robotaxis “we take a blend of end-to-end and service provider 2040E revenues, apply the same 10x software multiple, and discount back 17 years”:

If you’re prepared to overlook the technical hurdles, arguments for rapid adoption are fairly sound. Far too many people die in traffic accidents globally, 93 per cent of which are a result of human error (source: WHO, 2018). Downtown cities have too much space given over to parking and commuters spend too long idling at slow speeds, etc.

Robotaxis solve everything. RBC says one driverless car might replace five regular ones, maybe:

[We] assume that robotaxis achieve full regulatory approval by 2035 (technological viability will probably happen by 2030). By that time, we expect the cost of a robotaxi could be $50k, far lower than our current $100k estimate.

According to our math, robotaxis should cost far less than private cars, given much better utilization (in the US, taxis do 6x as many miles per year vs a private car). Further, given robotaxis eliminate the need for a driver (45% of an Uber fare), a robotaxi fare can be 55% of current Uber fares. We suspect that this price should dramatically increase the appeal for consumers to substitute owning, maintaining, and parking a private car. Moreover, several cities (notably in Western Europe and China) are already talking about banning private cars all together.

The other way to approach the note is that, according to RBC, Tesla will miss its long-term growth targets by a huge margin. It forecasts just 3.8mn unit sales globally by 2030 and less than 5.7mn sales by 2035, equivalent to an 11 per cent market share, mostly because national champion marques are hard to outsell in their home territories. (Tesla’s stated goal is to reach 20mn sales per year and 22 per cent share.)

Robotaxis will be delivered in even smaller volumes — but the fleet will be generating software-company margins:

Our math suggests that an end-to-end robotaxi business could generate 54% operating margins. In the scenario where an OEM uses a service provider like Uber to handle reservations, we estimate these margins might only fall to 42% in the US. For Western Europe, we estimate an end-to-end robotaxi service could generate 52% operating margins and then only drop to 39% using a service provider.

Adding it all together, that’s a 5 per cent upside from today’s Tesla share price for the base case (or 67 per cent downside if . . . you know). RBC reiterates “outperform” advice:

Further reading:
— Uber to sell cannabis to customers in Canada (FT, 2021)