Selling the Most EVs Will Not Determine the Most Valuable Automaker
On March 20, 2020, I wrote an article about “Tesla’s Insurmountable Advantages.” At the time, I thought the company possessed substantial engineering advantages over other automakers. I believed Tesla’s vertical integration strategy was a competitive advantage that was difficult for competitors to mimic. Most importantly, however, I assumed that Tesla was close to developing and deploying full self-driving car technology ushering in not only the first robotaxi business in the world, but also an all-new revenue model to benefit the company similar to the impact AWS had on Amazon’s business.
Today, Tesla possesses very few competitive advantages over other automakers beyond the advantage of continuing to expand its global EV sales, which is a substantial accomplishment. However, Tesla is valued at nearly $800 billion, which is 2.5x more valuable than Toyota. There is no valuation model for Tesla that can logically justify this valuation if the company only remains a high volume seller of electric vehicles, even one eventually selling 10 million EVs every year. Toyota sells nearly 10 million vehicles each year with an operating margin that is higher than the operating margin of Tesla as of the second quarter. Thus, either Tesla is overvalued relative to Toyota, or Toyota is undervalued when compared to Tesla. It seems the former is the most logical answer about Tesla’s valuation today.
Solving Full Self-Driving” is the difference between Tesla being worth a lot of money and being worth basically zero. - Elon Musk
But what if Tesla becomes more than just an automaker? What if there truly is an AWS-like business in the company’s future. As I mentioned in a recent update, even Elon Musk has said, “Solving Full Self-Driving [FSD] is the difference between Tesla being worth a lot of money and being worth basically zero.” Of course he’s been predicting the introduction of full autonomous capability for years. The problem for Tesla today, however, is other companies are beating Tesla to the “fully-driverless punch” like GM’s Cruise and Alphabet’s Waymo subsidiaries. These companies are already operating driverless taxi services in multiple cities with government approval.
If Tesla solves FSD, why would their autonomous technology or business model be better than GM or Alphabet? In fact, how would Tesla actually profit from FSD beyond selling the feature as an extra cost option on its cars? Will Musk license the technology to other companies? Will he develop a viable robotaxi business? If so, what competitive advantages will a Tesla robotaxi business have over one from Cruise or Waymo? Most importantly, what impact will FSD have on Tesla’s revenue, margin and profit? For the Tesla investor, how will this surpass the revenue, margin and profit of GM, Alphabet and others that also launch robotaxi businesses?
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