Analysts said Tesla's robotaxi business may not end up being as good for the electric car maker as investors hope.
On Thursday, RBC analyst Tom Narayen lowered his price target on Tesla shares to $227 from $293 but maintained his buy rating. He adjusted his calculations for robotaxis.
Tesla shares fell 1.5% to $1,821.2 in early morning trading.
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Tesla is holding a robotaxi event on August 8. Investors are hoping to see what Tesla's robotaxi will look like, but also hear what progress Tesla is making with its artificial intelligence-trained self-driving software.
Tesla currently sells advanced driver assistance systems, but the company is not truly self-driving, and CEO Elon Musk believes that developing truly self-driving cars would be hugely profitable for the company.
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If that were to happen, Tesla could operate a fleet of self-driving cars akin to Uber Technologies Inc. It could also offer an Airbnb-like service for Tesla owners to leave their unused cars with a taxi network. Uber and Lyft could also incorporate self-driving Teslas into their own fleets.
It's hard to predict how big the robotaxi business will be. ARK Invest's Cathie Wood thinks it could be worth more than $5 trillion by the end of the century. Morgan Stanley analyst Adam Jonas values Tesla's autonomy and software at roughly $500 billion.
RBC's Narayan lowered the value of Tesla's robotaxi business to $414 billion from $627 billion.
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“Previously, we ran two scenarios,” Narayen explains — one in which Tesla “owned the customer through its app,” and another in which a company like Uber owned the customer, “and then we averaged the two revenue totals. [for Tesla]. ”
Now he has other scenarios in place that include other vehicles using Tesla's software, as well as other vehicles with Tesla's software in various third-party robotaxi networks.
The new scenario essentially shows Tesla's software enabling other cars to drive themselves, which is good for Tesla's software business but means the company doesn't register any car sales, and more people benefit in the value chain.
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Narayen believes robotaxis will eventually charge passengers 81 cents per mile. At that rate, based on four scenarios, Narayen projects global Tesla robotaxi revenues could reach roughly $120 billion annually by 2040.
It's incredibly hard to predict exactly how the robotaxi economy will develop, since there's no large-scale, ubiquitous network in operation yet. The potential complexities have shaved about $200 billion off Narayan's Tesla valuation, which is bad news. The good news is that he still thinks the business is worth hundreds of billions of dollars.
As of Thursday's trading open, Tesla shares were down about 26% year to date as slowing EV sales have weighed on investor sentiment. Tesla is expected to deliver about 837,000 vehicles in the first half of 2024, down about 6% from the 889,000 deliveries it made in the first half of 2023.
Email Al Root at allen.root@dowjones.com.
