Ark Invest founder Cathie Wood is known for making outlandish forecasts. In 2018, she said tesla (TSLA -2.99%) would reach $4,000, and by 2021, the electric vehicle maker had done just that. He also said earlier this year that bitcoin would skyrocket to $1.48 billion, although the cryptocurrency has hovered around $30,000 for months.
He is also exceptionally bullish on the market for robotaxis, or autonomous vehicles that are starting to take over San Francisco and other cities. Wood believes robotaxis will generate between $8 and $10 trillion in revenue globally by 2030, and sees Tesla as a leader in that market.
Ark now has another bold price target for Tesla, calling for it to hit $2,000 per share by 2027. That's a nearly 800% gain, and it's largely due to its robotaxi forecast. Wood's company expects robotaxis to account for 44% of Tesla's revenue and 64% of its earnings before interest, taxes, depreciation and amortization (EBITDA), based on a report it published in April.
Some big assumptions
To be clear, Tesla does not currently have an autonomous vehicle business, so Wood's forecast assumes a successful launch of robotaxis and an increase of hundreds of billions of dollars in revenue in just a few years.
Tesla's robotaxi project builds on the successful rollout of its fully self-driving technology, which is currently in beta and has sparked a variety of opinions on how well it works.
Tesla CEO Elon Musk has mocked robotaxis several times in the past. Last April, he said the company would mass produce robotaxis in 2024 and that the vehicles would have no steering wheel or pedals. Since then, there has not been any significant update on robotaxi manufacturing.
Musk has also discussed the idea of โโcustomer-owned Tesla vehicles being used as robotaxis, saying Tesla owners could earn up to $30,000 a year leasing their cars once fully autonomous driving is implemented, and he envisions some type of revenue sharing with Tesla.
The flaw of the robotaxi thesis
There are a number of problems with Wood's thesis about Tesla robotaxis.
First, its revenue estimate of between $8 and $10 trillion assumes that robotaxis will essentially replace all other competing forms of transportation, which seems highly unlikely in just seven years. If you already own a working vehicle, you're unlikely to abandon it to pay for a robotaxi ride. For comparison, Uber recorded $60 billion in gross rideshare bookings last year, or less than 1% of the $9 trillion.
Still, autonomous ride-sharing is likely to be a huge market if the technology really works, but that leads Wood to a better question about Tesla's robotaxi opportunity: What exactly is Tesla's competitive advantage in robotaxis? ? The electric vehicle maker has lost its first-mover advantage in the industry, as several competitors are already on the road with their own robotaxis.
The Tesla brand, to the extent that it might be an advantage, doesn't really seem relevant, since we're talking about borrowed rides, not owned vehicles, and there are legacy automakers with much more capability than Tesla.
The best argument for a Tesla acquisition from emerging countries robotaxis market It appears the company could flip a switch once full autonomous driving is ready and turn every Tesla on the road into a potential robotaxi. Only Tesla seems in a position to do something like that, but if the vehicles it owns were anywhere near that capability, why would the company have cut prices on its vehicles multiple times this year?
If Musk expects a massive robotaxi platform to arrive soon, Tesla should sell its vehicles at a premium price, arguing that they will soon generate income for the owner through robotaxi rentals. The price cut undermines any anticipated value coming from the new technology.
Image source: Cruise.
A Best Robotaxi Stock to Own
Instead of putting all your chips into a stock that currently doesn't have a robotaxi outstanding, a better option to get exposure to this nascent industry is General Motors (GM -2.18%)which is currently trading at a bargain price and owns around 80% of autonomous vehicle startup Cruise AV.
Cruise is currently available for self-drive tours in San Francisco, Phoenix and Austin, Texas, and is in the process of expanding to more than a dozen new cities. By August, it had about 400 autonomous vehicles on the road that had driven more than 4 million driverless miles with 65% fewer crashes than human drivers in a comparable environment. Its upcoming expansion will mean an increase in the number of vehicles on the roads.
While Tesla talks a lot about robotaxis, GM's Cruise is doing it in the real world, collecting data and expanding rapidly. More importantly, Cruise is doing better than any of its competitors, including Alphabet's (GOOG -1.22%) (GOOGLE -1.16%) Waymo.
According to data from California, where most AV testing takes place, Cruise had the fewest disconnections per mile driven, with just nine in 863,000 miles in 2022, or one every roughly 96,000 miles. That was more than double that of second-place AutoX, and much better than Waymo, with one disconnection for every 17,060. A disconnect occurs when the AV system returns control to a human driver or the driver takes the steering wheel away from the AV.
Notably, Ark also owns a small position in GM, likely for exposure to the Cruise division.
Given GM's very cheap valuation, investors can essentially own Cruise's business for free right now by buying GM stock, and Cruise has a clear advantage over Tesla as it deploys to 16 cities and ramps up production while Tesla does not yet operate a robotaxi. Additionally, Cruise's maximum disconnection rate should give investors confidence that the technology works.
For investors seeking exposure to the emerging robotaxi market, GM is a must-have stock.
