Is Tesla Worthless Without Full Self-Drive
“Solving Full Self-Driving” [FSD] is the difference between Tesla being worth a lot of money and being worth basically zero.” - Elon Musk
The valuation of Tesla cannot be supported by its electric vehicle business alone. This essentially is what Elon Musk said in the quote ahove. Many Tesla investors disagree with Musk on this point, choosing to ignore his belief about the importance of FSD to the valuation of the company.
At nearly $250 per share, Tesla has a market capitalization of approximately $800 billion, a figure far beyond that of other global automakers like General Motors, which is valued at $50 billion. The fact that Tesla sells EVs, while GM primarily sells ICE vehicles, does not make Tesla worth 16 times more than GM.
Without an incremental business driven by FSD, Tesla is just another automaker.
Tesla has a slightly better operating margin than GM (9.6% for Tesla versus 6.7% for GM during Q2 2023). However, this difference in operating margin cannot justify a 16x valuation over GM.
Tesla has other businesses like solar and battery storage (GM has other businesses as well). Yet, with 82% of Tesla’s revenue coming from the automotive businesses, these other businesses do not drive a Tesla valuation 16x higher than GM.
Even if Tesla were to sell five times more EVs than it does today, this would not justify a 16x valuation over GM.
Musk knows that EV sales alone cannot support an $800 billion valuation.
Only a significant, new business revenue source can support Tesla’s current valuation. Elon Musk knows this as well. Without an incremental business driven by FSD, Tesla is just another automaker. This is similar to Amazon being just another very successful retailer without AWS. The value of Amazon is primarily driven by its AWS cloud business.
The promise of FSD represents a potential, massive new revenue source for Tesla. In fact, FSD represents a potential and entirely new business sector for the company.
However, let’s not forget that term above, “potential.” In 2016, Musk said he believed Tesla would have fully self-driving cars by 2018. In 2021, he said FSD would be in wide release by the end of that year. FSD is still in beta form today. Today, it clearly is not a full-self drive system.
If you believe Tesla will eventually solve the technical challenges of FSD and create a new business around it, then the company’s valuation seems more logical. However, Tesla is not the only company developing “full self-drive” capability. In fact, Alphabet’s Waymo subsidiary and GM’s Cruise division are offering driverless taxi services today in multiple cities. It’s these types of new business opportunities that drove Musk’s “Tesla is basically worth zero” comment. He knows that EV sales alone cannot support an $800 billion valuation.
Disclaimer
TaaSMaster, LLC is not a registered investment advisor or broker/dealer. All investment opinions expressed by TaaSMaster, LLC are from personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur.