When you hear the name Tesla, you might think of sleek electric cars, visionary leadership, and futuristic innovations. However, even giants stumble from time to time. Recently, RBC Capital Market analyst Tom Narayan made waves by lowering his price target for Tesla (NASDAQ:TSLA) stock from $293 to $227 per share. This significant drop comes despite Narayan maintaining his “Outperform” rating for the company. So, what’s behind this move?
In a riveting note, Narayan adjusted his expectations for one of Tesla’s most ambitious projects: the Robotaxi service. This move comes as he recognizes the growing role that service providers like Uber and Lyft are anticipated to play in the future Robotaxi landscape. “We lower our TSLA robotaxi value and now allocate a bigger revenue share to Service Providers like Uber/Lyft,” Narayan stated, aiming to temper his bullish forecast with a dash of reality.
Two Scenarios for Robotaxis
RBC Capital Market analysts are not abandoning the concept of Robotaxis—far from it. They actually foresee Robotaxis expanding the total addressable market for vehicles. The question isn’t if, but how, and with whom. In past analyses, RBC evaluated two main scenarios: one where Tesla runs its entire Robotaxi operation in-house and another where external fleet operators utilize Tesla’s Full Self-Driving (FSD) technology, but not necessarily Tesla vehicles.
Adapting to a Shared Future
Narayan’s updated model introduces a nuanced view where Tesla’s app or that of another service provider could be utilized. In the best-case scenario for Tesla, where it owns the entire operation, the company could capture 100% of the revenue. On the flip side, if Robotaxis use another company’s app and vehicles, Tesla might only garner 10% of the revenue. These insights were elaborated in a report by Investing.com, adding layers to what can only be described as an evolving narrative.
Timeline Adjustments and Revenue Breakdown
While mainstream adoption of Robotaxis is still on the horizon, Narayan adjusted his timeline, predicting their widespread use closer to 2040. “When Robotaxis reach mainstream global usage (which we see happening closer to 2040), there will likely be multiple software providers, fleet operators, and OEMs making these purpose-built vehicles,” explained Narayan. Such a timeline extension influences not just the price target but also how investors should perceive the company’s immediate future.
Despite the lowered expectations, Narayan remains optimistic about Tesla’s diverse portfolio. Robotaxi business, even at tempered valuations, is expected to account for 52% of Tesla’s value, down from the previous estimate of 68%. Full Self-Driving (FSD) contributes 27%, Megapacks contribute 15%, and the core car sales contribute a modest 6%.
Upcoming Unveiling
One event that investors shouldn’t overlook is Tesla’s planned unveiling of its dedicated Robotaxi on August 8, 2024. This event could serve as a key indicator of Tesla’s progress and might either reaffirm Narayan’s cautionary stance or ignite renewed investor enthusiasm.
In summary, this price target adjustment forces us to re-evaluate the optimistic timelines previously set for Tesla’s foray into the Robotaxi sector. As with any disruptive technology, the road to mainstream adoption is rarely smooth. Yet, even as hurdles arise, the potential for significant market expansion and revenue still makes Tesla a compelling prospect. For now, investors are left to balance tempered expectations with the undeniable allure of Tesla's far-reaching ambitions.
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