Ark Invest recently updated its 4-year stock price outlook for Tesla (TSLA). Notable about this was that most of Tesla’s long-term multi-trillion valuation hinges on Tesla’s foray into robotaxis, a business that currently does not even exist yet.
However, what’s most concerning about this is that Tesla only shortly thereafter updated its robotaxi timeline, which has now been pushed out as far as 2024. This means Tesla is at least two years behind – which could well become even longer given Tesla’s nonexistent track record – its most prominent competitor Intel (INTC) Mobileye, which is set to start commercial operations this year already.
So not only does this lack of leadership position make Tesla non-investible, but if one does take Ark’s estimated market potential of robotaxis at face value, then this suggests Mobileye could be a far superior investment given its rumored IPO at a mere $50 billion valuation.
I covered Tesla’s progress on autonomous driving last year. My main criticism or concern was that Tesla was using just cameras. While this is undoubtedly the cheapest way to bring autonomous driving to market, what matters most is safety. I pointed out that basically all of Tesla’s competitors were doing either sensor fusion or even making fully redundant systems using a combination of camera, lidar and radar.
In the bear case, I questioned whether Tesla’s approach would ever work:
As it stands, though, there seems a reasonable likelihood that Tesla’s system simply will never become reliable enough given that it doesn’t have HD maps and neither does not it have sensor redundancy. For comparison, Mobileye will have both maps and three fully redundant, independent sensor systems. (…) Given that some, such as ARK Invest, have attributed even trillion-dollar valuations to Tesla’s FSD, a possible failure to develop FSD could be a serious risk for the stock.
In addition, at the beginning of this year, I argued similarly that Mobileye remained positioned as leader in this space, in the wake of its announcement to bring a consumer AV to market in 2024: Intel Drops A Bomb On The Robotaxi Industry.
One not too highly covered topic from the recent Tesla earnings was Elon Musk’s announcement of a dedicated robotaxi. From the transcript:
So, we’re also working on a new vehicle that I alluded to at the Giga Texas opening, which is a dedicated robotaxi. That’s highly optimized for autonomy, meaning it would not have steering wheel or pedals. And there are a number of other innovations around it that I think are quite exciting. That is fundamentally optimized for -- trying to achieve the lowest fully considered cost per mile or cost per kilometer, accounting everything. And so, it’s, I think, going to be a very powerful product where we aspire to reach volume production of that in 2024. So, I think that really will be a massive driver of Tesla’s growth.
None of this should be a surprise to anyone, as Tesla has long aspired, but failed, to develop software to make its vehicles fully autonomous. For example, last year Tesla dedicated a full event about its Dojo supercomputer. There is a running meme that Musk has promised full self-driving “next year” for the last half a decade. The latest announcement puts Tesla’s robotaxi in 2024.
Notably, shortly before this announcement, Ark Invest had updated its 4-year outlook for Tesla. Although Ark’s expectations for a robotaxi in 2024 actually line up quite well with this latest announcement from Tesla, what’s concerning about Ark’s model is that in the base case, a staggering 60% of Tesla’s 2026 valuation hinges on its robotaxi business: “Tesla’s prospective robotaxi business line is a key driver, contributing 60% of expected value and more than half of expected EBITDA in 2026.”
In general, it seems that Ark is simply expecting a ramp of this business that is unrealistically short and steep. For investors, a general rule of thumb is that people may overestimate changes in the near-term while underestimating changes in the long-term. Here, Ark clearly seems to expect that one day the world will wake up and everyone will be driving in Tesla robotaxis. This will never happen even if it was just because Tesla won’t even be able to manufacture that many vehicles that quickly.
Basically, Ark is assuming that Tesla will leapfrog competitors such as Uber (UBER) that have a head start of more than a decade in ride-hailing in a whim. While obviously Tesla will have superior technology, like all businesses it will take years to fully scale in order to drive a valuation on the order of a trillion dollars or more. As such, investors who buy into Ark’s model for Tesla stock should be aware that there is already a 60% possible downside without even looking at how the “legacy” automotive business has been valued.
The main problem why Ark’s “research” is untenable, however, is because it doesn’t acknowledge the fierce competition in the robotaxi space. Waymo recently expanded its already operational robotaxi service to San Francisco, and there are numerous other players developing this technology.
As I have argued numerous times in the past, Tesla’s main competitor and in general the leader in this space is Intel’s Mobileye. In all the time I have followed Mobileye’s progress, the company has only seen one delay, which is by far the best track record among anyone in this nascent industry. In particular, in 2017 Mobileye was targeting a Level 4 consumer AV in 2021. However, in 2018 Mobileye updated these plans to launch a robotaxi in Israel in 2022. In 2019 and 2020, more announcements for other geographies followed, all targeting the 2022 and 2023 timeframes.
While Mobileye hasn’t provided updates on these other geographies, Mobileye’s most recent statements reaffirm its plans to start driverless operations in 2022 in Israel and Germany. Basically, Mobileye said it is just waiting for regulatory approval. (Strictly speaking there may be a delay from the first half of 2022 to the second half, but as mentioned Mobileye has said that its only roadblock – no pun intended – at this point is regulatory approval.) Mobileye’s progress was confirmed recently by showing its full robotaxi in operation at night time.
While the general public continues to think that robotaxis and autonomous vehicles in general are still many years away, and even then may only be able to drive in perfect and easy conditions such as highways, at least Mobileye has already figured this technology out in even the most challenging circumstances and is now planning to scale this globally in the coming years.
It is an exciting time to be an investor in AI, because after many years of promises and talk, the autonomous driving transportation revolution will see major advances this year as the tech finally moves to the street.
However, the problem for Tesla investors is that it isn’t Musk’s company that is charging forward in this space, but rather a company called Mobileye that has been reliably executing on its 2018 roadmap, whereas Tesla for its part recently either announced or delayed its robotaxi plans to 2024 (depending on how one would like to look at it). By contrast, the only thing currently stopping Mobileye is regulatory approval in order to remove the safety driver, but Mobileye says it is on track to clear these hurdles, in no less than two countries (Israel and Germany), in 2022.
What’s even more exciting is that this leadership company is rumored to IPO around just a $50 billion valuation in just a few months (the rumor is about the valuation, the IPO plans are public). For comparison, Ark recently attributed 60% of Tesla’s 2026 multi-trillion dollar valuation to its currently nonexistent robotaxi business.
Hence, in conclusion, I would propose investors to apply Ark Invest’s trillion dollar robotaxi valuation model not to Tesla, but to Mobileye. Not only is Mobileye’s progress far more tangible and further advanced than Tesla, making it the real leader in AVs, but the much smaller current valuation arguably provides the possibility for far greater long-term upside.
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Disclosure: I/we have a beneficial long position in the shares of INTC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.