Tesla’s Robotaxi Event: Elon Musk’s Key Questions

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The event, originally scheduled for August, is where CEO Elon Musk has promised to release a final design and more detailed plans for Tesla’s Uber-like self-driving car service.

Investors are eager to learn more about this business segment, which Musk views as Tesla’s true value-generator. This is as the electric car market becomes increasingly competitive.

Musk first mentioned the robotaxi day event in April, following disappointing first-quarter earnings. These earnings have kept Tesla’s stock price subdued, despite broader market gains.

In typical fashion, Musk’s promise of a developing robotaxi business helped offset the earnings miss. This move boosted Tesla’s stock price.

“I’ll go back to something I said several years ago: that in the future, gasoline cars that are not autonomous will be like riding a horse and using a flip phone,” Musk said on the April call with analysts. “We continue to make the necessary investments that will drive growth and profits for Tesla in the future.”

Now, he’ll have to deliver on this promise with concrete results. His track record in this area is mixed.

Over the years, Musk has raised investor and customer excitement with unfulfilled promises. Examples include fully self-driving Teslas by the end of 2017, The Boring Company’s Hyperloop project, and delayed new vehicle releases. He initially promised these, but they have yet to materialize.

Despite the hype, there are significant unknowns for investors to consider.

1. Who’s in charge of all the cars?

Musk’s plan to allow Tesla drivers to rent out their cars for self-driven rides, “like Airbnb,” may face challenges, UBS analyst Joseph Spak noted in a recent report.

“Is an individual really ready to let the Model Y they spent ~$45k on be used by strangers?” Spak asked. He questioned the feasibility of this concept, citing concerns over maintenance, cleaning, and recharging. Who would be responsible for these tasks, and where would the insurance responsibilities lie?

Musk has stated that Tesla would operate its own fleet if owner rentals fail. Spak, though, believes this approach would be more capital-intensive.

The latest attempt at Tesla fleet management was unsuccessful. Rental-car giant Hertz sold off its fleet of Teslas earlier this year, citing high repair costs.

2. How safe is FSD?

Spak questions Tesla Full Self Driving (FSD)’s rate of improvement compared to competitors like Waymo.

UBS estimates Tesla’s FSD v12.5 disengages every 180-200 miles, or every 100-120 miles on city roads. Tesla doesn’t release its disengagement data. Spak believes this data is critical for assessing robotaxi readiness.

To meet Waymo’s standards, Tesla would need a 770-time improvement from current city street performance, Spak estimates.

Safety is a major concern for Morgan Stanley analyst Adam Jonas heading into robotaxi day.

“Will investors see data comparing the safety of Tesla’s AV vehicle technology to human driving?” Jonas wrote in a note last week.

Trust in Tesla’s FSD is already strained by a massive recall earlier this year. Its predecessor, Autopilot, has been linked to several accidents.

3. How much will all of this cost?

The biggest concern on Oct. 10 is the size and cost of Tesla’s future AI investments.

There is already a capital “arms race” in the self-driving car segment, Jonas wrote. He estimates the resources required will be “heavy investment, potentially measured in the tens (possibly hundreds) of billions of $ of investment over time.”

Spak expects Musk to discuss the total addressable market for his robotaxi business. He warns that these numbers should be viewed skeptically.

Jonas is unsure if Musk can meet investors’ high expectations on Oct. 10, he wrote in his note to clients previewing the event.

Aside from a demonstration of the latest FSD version and a ride in the Gen 1 Cybercab spotted in Los Angeles, Jonas is eager to hear about Tesla’s AI plans and execution.

“Tesla’s future valuation is highly dependent on its ability to develop, manufacture, and commercialize autonomous technologies,” Jonas wrote.

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