Speculative Tesla owned Uber-like service impact on Tesla's Mission and Valuation?

[SteveG3]

Uber has so far raised $5B and is valued at higher than $50b.

Uber Valued at More Than $50 Billion - WSJ

If Tesla decides to come to this business, it will be 10 years later than Uber which by then should be the undisputed leader by huge margin if current situation persists.

With current Model, Uber is just an app, and hence most of the funding goes to direct marketing, regulatory, compliance and court fees. If Uber or any other company is to own the fleet, that will require enormous upfront investment (aka yellow cab minus drivers). And for Tesla it will be a lot more to spend in marketing and making inroads into this industry. There may be new competition as well.

My thought from what Elon said in cc is that he is really not sure and has not given much thoughts. I hope people don't start valuing this potential business as a win and add $s per share earnings just yet.

pGo, a self-driving vehicle completely disrupts the economics of the business. The service provider does not need to pay a driver. This means a dramatic change in pricing and profits... tbd how it is split between the two. Tesla will be Netflix to Uber's Blockbuster.

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He isn't sure because Autonomous driving needs to be perfected first for all corner cases in that respect. I wouldn't commit to a time line either. If Tesla were to do this -- I see it as part of the mission to make human's more productive. Instead of stopping "productive" work to get to where you have to go via driving... just have the thing pick you up and get you there... no worries no hassle.

I may have this wrong, but hasn't Elon basically said autonomous driving in 5 years or less, regulatory okay guess another 3-5 years? My recollection is Elon recently indicated the timeline has been shrinking, and seems to continue to shrink.

 

[pGo]

pGo, a self-driving vehicle completely disrupts the economics of the business. The service provider does not need to pay a driver. This means a dramatic change in pricing and profits... tbd how it is split between the two. Tesla will be Netflix to Uber's Blockbuster.

I edited my comments tobadd one more important point. People who buy Tesla autonomous vehicles can register their fleet with Uber as they do now, but with self driving, the owner gets paid and Uber makes money too. I am saying Tesla does not being anything different to this market. Self driving feature can be utilized by Uber free of fleet.

 

[pGo]

I agree about autonomous driving around the corner in 5 years as MBLY also said recently they don't see regulatory hurdles. This may open up new businesses but if we say people will stop buying cars, I can see the argument in favor of Tesla. However, I believe that cars are personal, practice, shows independence, and very handy application which won't go away easily.

 

[SteveG3]

I edited my comments tobadd one more important point. People who buy Tesla autonomous vehicles can register their fleet with Uber as they do now, but with self driving, the owner gets paid and Uber makes money too. I am saying Tesla does not being anything different to this market. Self driving feature can be utilized by Uber free of fleet.

Entire coordinated fleet built and scaled to the exclusive dedicated purpose of serving a specific region's need for pay per ride will be more efficient than an unpredictable scale of private vehicle owner's splitting the vehicle's use between personal and service usage. Moreover, their are the inherent advantages to Tesla I mentioned in post 18.

 

[pGo]

Entire coordinated fleet built and scaled to the exclusive dedicated purpose of serving a specific region's need for pay per ride will be more efficient than an unpredictable scale of private vehicle owner's splitting the vehicle's use between personal and service usage. Moreover, their are the inherent advantages to Tesla I mentioned in post 18.

I see your view Steve, and seeing Elon one cannot discount what can he offer, so it will be interesting to see what his thoughts are in coming years. Cheers.

 

[SteveG3]

I agree about autonomous driving around the corner in 5 years as MBLY also said recently they don't see regulatory hurdles. This may open up new businesses but if we say people will stop buying cars, I can see the argument in favor of Tesla. However, I believe that cars are personal, practice, shows independence, and very handy application which won't go away easily.

pGo, this is actually not about people no longer buying cars, but rather switching from service vehicles like taxis driven by people to automated vehicles.

Last year about 82 million were vehicles were sold, and by 2020 it's expected to reach 100 million. The more that switch the better for Tesla's bottom line, however, I see a $200 billion market cap for just this part of the business if Tesla can reach a fleet of 100,000 such service vehicles. We're talking about a very small part of the market... and there's already a far larger number of taxis globally than this so, it's not even really about switching anyone's behavior or attitudes.

 

[SteveG3]

Starting to see where the profits I was projecting run into "too good to be true." Tesla can only command that kind of return while they are effectively the lone supplier of self-driving cars in a market. It's possible Tesla may have a couple of years lead on competitors, but eventually it would seem the savings of automating the job of the driver will largely be passed on to the consumer rather than retained by the vehicle owner when multiple players can provide these fleets and supply and demand set a price. Tesla may create a moat for a period of time in some specific cities if they can lock up a period of exclusivity for offering an entire fleet before anyone else has something to offer. This may be a nice added business for Tesla, but unlikely on the scale of my initial estimates. Maybe there's another model where the business gets that big, but it would probably involve consumers who currently purchase cars switching to pay-per-ride.

 

[pGo]

The way I see this business evolving is consumers will still want to purchase autonomous cars. But while sitting idle, some users may want to take advantage of the feature and have it added to the most popular service available where they get the best dime for offering their service.

Consumers will buy Tesla autonomous cars, and other MBLY implementations from manufacturers. So, for me, for example, my car drops me off to work and is now ready to pick someone up using Uber (naming only because that'll be the most likely popular company based on current situation) and it will be ready by the time I want to leave from work.

As a note, Uber has many competitors in every region of the world and it is not easy to compete with them. To rationalize a bit, Lyft is a similar service with 1/10th valuation as Uber. Lyft was founded in 2012 while Uber 3 years before that. Uber has been growing exponentially (while also making huge losses, but gaining huge marketshare) while Lyft needs a lift. If we think that Tesla can just outmuscle Uber 5-7 years from now, and that thought can be valued today, I would have to disagree.

 

[Johan]

Starting to see where the profits I was projecting run into "too good to be true." Tesla can only command that kind of return while they are effectively the lone supplier of self-driving cars in a market. It's possible Tesla may have a couple of years lead on competitors, but eventually it would seem the savings of automating the job of the driver will largely be passed on to the consumer rather than retained by the vehicle owner when multiple players can provide these fleets and supply and demand set a price. Tesla may create a moat for a period of time in some specific cities if they can lock up a period of exclusivity for offering an entire fleet before anyone else has something to offer. This may be a nice added business for Tesla, but unlikely on the scale of my initial estimates. Maybe there's another model where the business gets that big, but it would probably involve consumers who currently purchase cars switching to pay-per-ride.

Great thread Steve. During my reading of it I gradually came to the same conclusion you just did: if there's a 1000% gross margin business (just picking a ridiculous number) the natural thing that happens is someone goes in and undercuts your pricing settling for "only" 500% gross margin thereby stealing your customers.

The only way to avoid this is by having a monopoly, either when it comes to EV manufacturing or autonomy. A type of monopoly in either of these fields seems very is unlikely for Tesla to be able to sustain for more than a short period of time.

 

[SteveG3]

The way I see this business evolving is consumers will still want to purchase autonomous cars. But while sitting idle, some users may want to take advantage of the feature and have it added to the most popular service available where they get the best dime for offering their service.

Consumers will buy Tesla autonomous cars, and other MBLY implementations from manufacturers. So, for me, for example, my car drops me off to work and is now ready to pick someone up using Uber (naming only because that'll be the most likely popular company based on current situation) and it will be ready by the time I want to leave from work.

As a note, Uber has many competitors in every region of the world and it is not easy to compete with them. To rationalize a bit, Lyft is a similar service with 1/10th valuation as Uber. Lyft was founded in 2012 while Uber 3 years before that. Uber has been growing exponentially (while also making huge losses, but gaining huge marketshare) while Lyft needs a lift. If we think that Tesla can just outmuscle Uber 5-7 years from now, and that thought can be valued today, I would have to disagree.

That kind of personal vehicle/service vehicle you described may have a place in some markets, but as I described in post 24 a dedicated service fleet has inherent advantages.

As to "outmuscling" Uber, I disagree. This is no more Tesla replicating Uber's business than Netflix was a replication of Blockbuster. The fundamental disruption is removing the overwhelming majority of costs of pay-per-ride, the drivers' salary, with an autonomous vehicle.

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Great thread Steve. During my reading of it I gradually came to the same conclusion you just did: if there's a 1000% gross margin business (just picking a ridiculous number) the natural thing that happens is someone goes in and undercuts your pricing settling for "only" 500% gross margin thereby stealing your customers.

The only way to avoid this is by having a monopoly, either when it comes to EV manufacturing or autonomy. A type of monopoly in either of these fields seems very is unlikely for Tesla to be able to sustain for more than a short period of time.

Thanks Johan.

Perhaps if Tesla's first to market they'll cut some deals splitting this massive added value between themselves and cash strapped city governments that can offer Tesla exclusivity in taking care of the city's pay-per-ride vehicle supply for X years. I guess a municipal government authorized monopoly. This would look something like a steep reduction of fares for the consumer's benefit (~50%), huge profits for Tesla, with the local government taking something like 15-40% of gross profits in a licensing arrangement.

It's never been clearer to me why Elon is so focused on being in the lead with a driverless car in the middle of his trying to turn the automotive world upside-down in terms of electric drivetrains. That's my hunch anyway.

 

[Ludus]

Uber seems structured for the autonomous car revolution in much the same way Netflix was structured for streaming even when it's business was just mailing DVDs. On Uber's platform, Tesla or other autonomous cars could be introduced in any of it's markets around the world with little extra effort. Uber has an enormous advantage in already dominating the market with an evolved app and a large loyal customer base. At most duplicating Uber's system would gain Tesla an extra 20% revenue share over putting it's cars into Uber's system, though there's definitely an opportunity in taking some position other than just selling cars to Uber or selling them to third parties who place them into the Uber system.

If Autonomous Tesla Model 3 is the best available option, Uber could certainly use it but Tesla has been designing cars for owner/drivers and the vehicles needed for this purpose will be different.

The fast automated battery swap system is a natural for a Tesla "Ubercar". It doesn't make much sense with the current system but for large fleets of autonomous vehicles operating in a confined geography 24/7 it's perfect. Whenever it needs it, an Ubercar goes to the nearest facility and swaps out it's battery so it's ready in 5 minutes for another 200 or 300 miles. A few facilities would cover a whole city. They don't have to be in prime locations. Battery ownership isn't an issue for commercial fleets. There might also be Ubercar stands for them to use snake chargers when things are slow and there isn't enough demand for all of them.

It makes sense for Ubercars to come in several sizes from Googlecar 2 seaters to minivans to small city buses. It doesn't make much sense for them to be designed like conventional cars to appeal to the owner/driver's ego or sense of style since they are essentially taxis or public transport. They should have no driver controls, just passenger interaction by voice and touchscreen.

One thing Uber has proven to be really good at is just going in and doing things that seemed legally and politically dangerous and stupid and fighting their way through the consequences. That's like a dry run for introducing autonomous vehicles. It will take fearless companies like Uber with lot's of lawyers and battlescars. Commentators often note how unsettled liability and insurance issues are. Players like Uber will work it out by just doing it and seeing what happens. The law will follow the facts on the ground.

 

[Ludus]

It seems like Tesla and Uber have 4 options with fully autonomous vehicles. 1) Uber could just buy the cars as Kalanick commented, 2) Tesla could develop it's own Uber like system 3) Both Uber and Tesla could support 3rd party owners who buy the cars from Tesla and operate them on Uber or 4) Uber and Tesla could partner to create a company that acts as the third party. The 4th option seems to be the most profitable for both companies. In this case Tesla would sell the cars at full retail price to the new company call it Ubercar. Tesla would cooperate to make it's software fully compatible with Uber and Ubercar. Uber would operate the network booking rides and collecting money. Ubercar would physically own and operate the cars and charging/swapping system. Uber would keep it's 20% share of revenue off the top. Ubercar would collect the other 80% of revenue and pay expenses splitting profits to the parents.

Until the question came up at the quarterly call, I assumed option 3 as the default. Both companies would just keep up as before and third parties would start putting the cars to work. The question and Elon's response made me realize how big the new business model could be. The cars couldn't operate under the model without extensive support and cooperation by both Uber and Tesla so it's their choice, third parties can't force it.

Much of the advantage of the model comes from aspects of Tesla's technical approach. Automated battery swapping and fast charging are important.

 

[forumman83]

It is possible that Elon had not thought about the idea of Tesla becoming a ride service company and the question made him realize that it was worth considering at some point in the future, so it was best to say nothing.

I disagree. To me, Elon's comment implied that he felt that somebody had tipped the analyst off with insider information. Elon was almost saying "that's an insightful question. how did you know that we at Tesla have considered our own Uber-like service?"

 

[Ludus]

On further thought it makes sense to me that what I was calling option 2, Tesla keeping it all in-house and creating a competitor to Uber, may be a strong case. Elon has been willing before to go ahead and develop stuff in house even when this seemed very difficult. Tesla built it's own operating system, it's own corporate software and is doing autonomous car engineering on it's own.

If they created a joint third party company with Uber, it would be leaving the majority of the money on the table. What they'd get for it, not having to replicate Uber's system may not be worth that much. Simply replicating the software functions isn't hard. Tesla already has a lot of legal battles to fight and it can hire folks from Uber and learn from Uber's experience. The biggest barrier to Uber's competitors is just scale and familiarity. Tesla would roll out a competitor market by market and the free publicity would be overwhelming in the target markets. Elon could launch in a new market by taking 30 seconds to send a tweet.

A crude estimate of the revenue based on Uber is that a single car can reasonably earn $120K/yr. This assumes it's available 24/7 obviously requiring more than one driver. Of this about $24k would go to Uber off the top. If Tesla partnered with Uber it would also give up half the profit from the remains 80%. That lion's share may not be justified compared to what Tesla's costs would be to just do it.

The current paradigm for automakers of selling to owner/drivers or to fleet operators like rental companies at a discount might hope to clear $8k on a $40k car sale under ideal circumstances. If Tesla put an autonomous car to work in it's own Uber like system it could clear 5X that much, literally making 100% profit or more on every car it builds.

Another point against partnering with Uber is that Uber has a major conflict of interest with it's current drivers if it starts competing directly with them using robots. Tesla has no such conflict.

 

[Ludus]

I disagree. To me, Elon's comment implied that he felt that somebody had tipped the analyst off with insider information. Elon was almost saying "that's an insightful question. how did you know that we at Tesla have considered our own Uber-like service?"

The approach you suggest is what really got me interested in this. I read Elon's pause and lack of response like this. That lead me to seriously consider the idea.

Tesla's designs may be especially well suited to full autonomy. While Elon's past comments about "autopilot" and a gradual approach to adding control features makes perfect sense for it's business over the next 5 years and selling to owner/drivers in general, there may be an enormous opportunity for fully driverless cars with a business model that builds them to operate them and sells car transportation as a service rather than the current model of selling hardware.

This approach also suits the mission of advancing sustainable technology. Each car Tesla builds to operate this way would displace multiple ICE vehicles rather than just one. The massive boost in profitability would support Tesla's need for capital to build new plants. The approach creates greater efficiencies by eliminating lots of infrastructure. It has a lot of visionary green cred while potentially making a lot of money.

 

[SteveG3]

Ludus, the crazy compelling returns of doing it alone? That's where we've gotten with this thread. There is a "too good to be true" part though... it's unclear how long Tesla can sustain those kinds of massive profits. Others will catch up with autonomous driving (it's not a lock that Tesla gets there first for that matter). At that point pricing of the service will be impacted by other autonomous vehicle offerings... consumers very likely will be the huge beneficiary here. An autonomous cab ride for a few miles may drop from ~$12, to the couple dollars it costs now to take the bus, or even less. I've suggested upthread a scenario where consumers, large cities (in the form of exclusive licensing fees), and Tesla all come out big winners by splitting the value added by this automation.

In my view, Tesla's capacity to command huge profits will depend on 1) how quickly other manufacturers match them in autonomous technology, 2) how aggressively Tesla's peers supply the market (Google I'd expect to dive in... it's the whole point of their vehicle effort, Daimler, for example, may get there technically but may well be more conservative about rolling out an Uber like business), and 3) how wide the market is. As to point 3), dense urban centers seem like a no brainer, it's a hassle to have and park a car. Areas in between urban and suburban, ? re the interest, suburban sprawl double ?... in these places we are getting into people changing their views about car ownership, and that's hard to predict. Conceivably the market will extend in scope to the point that even with competitors Tesla will be able to command profits far better than the vehicle business for a long time.

There's a lot of variables that are hard to predict for where such a business goes long term. That said, even a 2-3 year lead in getting to fully autonomous could generate enough profits to build a few more gigafatories and auto plants.

 

[Quant]

I seriously doubt that Elon Musk is going to think just 3-5 years out....and try to become somewhat of an Uber competitor.

That's ust not in his make-up.....I suspect he will do a throw back ( mentally ) to his Pay Pal days and think of Tesla as an asset heavy business model, and whatever his reincarnation of an Uber like business is....it will likely be a layering of the asset heavy Tesla business with an asset light Uber type business.

And, I doubt he will try to share the financial opportunity in an asset light, recurring revenue service business model with Uber!

it will be designed from scratch and from the ground up.....and leap frog Uber by around 2020.

That's not to say that Uber will not also evolve and meet any challenge from Tesla.....just saying Elon is not gonna just copy Uber and do some light weight thinking !

 

[SteveG3]

I seriously doubt that Elon Musk is going to think just 3-5 years out....and try to become somewhat of an Uber competitor.

That's ust not in his make-up.....I suspect he will do a throw back ( mentally ) to his Pay Pal days and think of Tesla as an asset heavy business model, and whatever his reincarnation of an Uber like business is....it will likely be a layering of the asset heavy Tesla business with an asset light Uber type business.

And, I doubt he will try to share the financial opportunity in an asset light, recurring revenue service business model with Uber!

it will be designed from scratch and from the ground up.....and leap frog Uber by around 2020.

That's not to say that Uber will not also evolve and meet any challenge from Tesla.....just saying Elon is not gonna just copy Uber and do some light weight thinking !

Yes. At this point, I think we've all come to the conclusion Jonas' question was "insightful" as Elon put it. There's no need for Uber... it's the autonomous vehicle that transforms this kind of service business, and that is an asset Tesla is working furiously and effectively to develop, not an Uber asset.

 

[dakh]

Few things to add to the mix. Folks keep talking about battery swap, but that doesn't look necessary to me. Peak demand will be served off of vehicles with maxed out batteries, as soon as demand drops some of them are going back to charging stations and then rotate.

Another idea is if the biggest challenge is city driving we might see them implement limited routes to parking lots just off highway exits as a start.

 

[SteveG3]

Ludus, the crazy compelling returns of doing it alone? That's where we've gotten with this thread. There is a "too good to be true" part though... it's unclear how long Tesla can sustain those kinds of massive profits. Others will catch up with autonomous driving (it's not a lock that Tesla gets there first for that matter). At that point pricing of the service will be impacted by other autonomous vehicle offerings... consumers very likely will be the huge beneficiary here. An autonomous cab ride for a few miles may drop from ~$12, to the couple dollars it costs now to take the bus, or even less. I've suggested upthread a scenario where consumers, large cities (in the form of exclusive licensing fees), and Tesla all come out big winners by splitting the value added by this automation.

In my view, Tesla's capacity to command huge profits will depend on 1) how quickly other manufacturers match them in autonomous technology, 2) how aggressively Tesla's peers supply the market (Google I'd expect to dive in... it's the whole point of their vehicle effort, Daimler, for example, may get there technically but may well be more conservative about rolling out an Uber like business), and 3) how wide the market is. As to point 3), dense urban centers seem like a no brainer, it's a hassle to have and park a car. Areas in between urban and suburban, ? re the interest, suburban sprawl double ?... in these places we are getting into people changing their views about car ownership, and that's hard to predict. Conceivably the market will extend in scope to the point that even with competitors Tesla will be able to command profits far better than the vehicle business for a long time.

There's a lot of variables that are hard to predict for where such a business goes long term. That said, even a 2-3 year lead in getting to fully autonomous could generate enough profits to build a few more gigafatories and auto plants.

Not surprisingly it's Adam Jonas drawing the market's attention to this potential third head of Tesla's potential profit making monster.

Jonas is not only drawing attention to this, given his assigning huge value to the potential business today, clearly he thinks the kind of issues in the post above will break Tesla's way.

“We view this business opportunity as potentially additive to Tesla’s existing model of selling human-driven cars to private owners and see potential for this model to conceivably more than triple the company’s potential revenues by 2029,” said the note. “That is, selling miles in addition to selling cars.”

The company is building unparalleled infrastructure for charging and other services, and can quickly adjusted to a shared mobility model. The company is introducing sensor and software capabilities in the Model X next month that could set the standard for self-driving technology.
“These are early days, but it is the view of the Morgan Stanley global auto team that Tesla may be best positioned to advance the state of the art in shared autonomy,” said the note.
The price target of $465 represents the midpoint of Morgan Stanley’s new base of $319 and bull case $611 valuation, reflecting its expectation that a mobility app will be announced in the next 12 to 18 months. The target is about 81% above Tesla's current trading level."

Tesla stock surges as Morgan Stanley says company will lead in self-driving technology - MarketWatch

"Here's a look at how this new mobility segment plays into the price target. It adds $244 a share, the second largest contributor behind the traditional Tesla Motors."

Jonas is being extremely aggressive adding so much value today (consider that most analyst's have added $30 or less for Tesla Energy which Tesla is known to have already worked on for years, clearly is pursuing and is talking about several billion in revenues from in 2017, vs. the "mobility segment" which Tesla has not officially indicated they will pursue, and potential big revenues are years further out if they do). He's more conservative than I've been about the timeline of full automated mobility... my guess has been 8-10 years, but he's apparently saying at least 10 years.

It will be interesting to see pushback on Jonas. There will be tons of press that he's nuts, but other analyst reaction will be interesting. I'm sure some will come close to saying he's nuts, at least for pricing in such a high probability of huge success, some will be non-committal, and some may validate what he's saying (hope the other AJ is at least somewhat in this camp).