Tesla (TSLA) CEO Elon Musk has long touted self-driving cars as the company’s future.
Musk said at a shareholder meeting in June that this technology alone would increase the company’s value by at least 10 times.
But with Musk set to unveil details of a fleet of self-driving taxis he has long hinted at on October 10, skeptics are worried it will be years before robotaxis become a profitable venture. I’m warning you.
“It might be a little hard to get super excited about the potential stock price reaction to Tesla,” said Tom Narayan, an analyst at RBC Capital Markets. “This is far into the future, so we don’t know how big of an impact it will have (on business).”
Tesla’s entry into the market puts it in direct competition with Google’s (GOOG, GOOGL) Waymo. Waymo operates self-driving taxi fleets in Los Angeles, San Francisco and Phoenix, with plans to expand in Austin.
While the timeline for Tesla’s self-driving taxis remains uncertain, analysts point to Waymo’s business model as evidence of difficult economics.
Unlike Uber and Lyft, which use vehicles owned and operated by individual drivers, self-driving taxi companies must own their entire fleet. This means managing costs for maintenance, car insurance, charging infrastructure, and cleaning.
All of these operating costs equate to $0.42 per mile per vehicle, according to a report from Lux Research. Chris Robinson, senior director of the energy team and author of the report, said this was two to three times the cost of owning a car.
“To be more competitive with car owners, we need to reduce the cost of providing these services,” Robinson said. “That’s why I don’t see a fundamental usurpation of car ownership any more than services like Uber and taxi drivers being replaced by robotaxis.”
Phoenix Mayor Kate Gallego arrives in a Waymo self-driving vehicle at the SkyTrain facility at Sky Harbor International Airport in Phoenix on December 16, 2022. (AP Photo/Matt York, File) (ASSOCIATED PRESS)
The process of automating vehicles further increases operating costs. Waymo’s current fleet consists of Jaguar I-PACE electric vehicles equipped for human drivers but modified with high-tech sensors and computers to enable full self-driving.
Parent company Alphabet doesn’t release specific revenue data for its self-driving services, but its business unit, which includes Waymo, posted an operating loss of about $2 billion in the first half. Robinson estimates that equipment costs alone now exceed $40,000 per vehicle.
Amazon’s (AMZN) Zoox is changing that calculus with its own vehicles designed specifically for self-driving applications. The company’s toaster-shaped vehicle has no steering wheel, pedals, or driver’s seat. This vehicle works both ways. In other words, it can travel in both directions.
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Amazon’s self-driving company Zoox tests self-driving cars near its headquarters in Foster City, California, on May 24, 2024. (Tayfun Coskun/Anadolu via Getty Images) (Anadolu via Getty Images)
The company plans to launch the service in Las Vegas next year. Co-founder and chief technology officer Jesse Levinson said Zoox wouldn’t have survived or brought to market without the support of Amazon, which acquired the company in 2020.
“Building cars is generally an expensive job, but this is a new type of car,” he said. “We have to build an autonomy stack and integrate it with this custom robotaxi, and we have to collect millions of miles of data. We have to do a lot of simulation, and we have to use all kinds of firmware and AI algorithms. , and then we need to develop the glue that connects it all together. Then we need to validate it in the field and prove that it’s actually safer than humans. It takes time and a lot of capital.”
Consulting firm McKinsey & Company estimates that the global self-driving taxi market could generate up to $1.3 trillion in revenue by 2030.
Tesla and SpaceX CEO Elon Musk listens to questions during a conference in Washington, March 9, 2020. (AP Photo/Susan Walsh, File) (ASSOCIATED PRESS)
Tesla bulls argue that the company has a distinct advantage as an established automaker with data from millions of drivers. However, the company has yet to prove that its self-driving technology can work on its own, and Musk has yet to provide details about how the self-driving vehicles will work.
Regardless of the timeline delay, Narayan said he expects Tesla’s self-driving vehicles to contribute to the company’s bottom line in a meaningful way. In his latest memo, he said robotaxi and fully self-driving subscriptions will account for half of Tesla’s valuation.
“I’m a big believer in the robotaxi concept,” he said.
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