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IInvestors have bet that Tesla’s (NASDAQ: TSLA) lead in autonomous driving technology – one of the most powerful trends in the auto market – will help shape the future of transportation. However, the company’s popular driver assistance feature, Autopilot, has come under increasing regulatory scrutiny this week, with the National Highway Traffic Safety and Administration (NHTSA) noting that it is investigating 11 cases of collisions. of Tesla vehicles with parked vehicles of first responders. In addition, two US Senators have asked the US Federal Trade Commission to investigate whether Tesla’s naming of its driver assistance systems “Autopilot” and “Full Self-Driving” was misleading. Tesla stock has fallen around 4% in the past three trading days, in part because of the news. So what do recent developments mean for Tesla’s autonomous driving ambitions?
While reported accidents are obviously of concern, safety-related incidents and investigations are an integral part of the automotive industry and we don’t believe this significantly changes the course of Tesla’s autonomous driving business. There is data that indicates that Tesla’s driver assistance systems make its cars safer. Tesla publishes vehicle safety reports on a quarterly basis and, based on its data from the first quarter of 2021, said it had an accident for 4.19 million kilometers driven with the autopilot on, compared to one accident for 2 .05 million kilometers traveled without autopilot, but with other active safety functions. Crash data compared over the past three years, in terms of total kilometers driven with autopilot on, is also declining. That said, Tesla’s current marketing may seem to trick customers into thinking that human oversight of the vehicle may not be necessary and this is likely an area where regulators could likely force the company to make changes. .
Sales of Tesla’s autonomous driving software appear to be growing well, despite the increase in accident reports in recent years. Although Tesla does not split software sales, the company’s automotive gross margins have been on a steady upward trend (25.8% in the second quarter, down from just 18.7% last year), which indicates that attachment rates for software, which are typically a very high margin, are likely on the rise. . Additionally, Tesla has also raised the prices of the software, to around $ 10,000 currently, down from around $ 5,000 in 2019, reflecting growing demand and capacity. Tesla has also launched a new $ 200 software subscription and we believe that could drive adoption. We should have a lot more details about Tesla’s self-driving progress when the company hosts its first AI Day event on Thursday evening.
We value Tesla stock at around $ 560 per share, almost 20% off the market price. See our analysis Tesla Rating (TSLA): Is TSLA Stock Expensive or Cheap? for more details on Tesla’s rating and how it compares to its peers.
[Updated 7/3/2020] Tesla: the king of autonomous cars?
Tesla stock (NASDAQ: TSLA) is up more than 150% year-to-date, with its market cap exceeding $ 200 billion. Difficult to understand. Why? When you look at a more traditional measure like the number of cars sold, Tesla is tiny – less than 400,000 cars sold last year, while many large companies, Honda, GM, Ford, Toyota, each sold more than 5. million cars. Correct, Tesla has sold a fraction of the cars sold by many other automakers and is more valuable than all of them.
So what drives Tesla’s value?
Part of that is improving fundamentals (better than expected first quarter results and second quarter deliveries, strong sales in China), but there must be more. Investors are likely betting that the disruption caused by Covid-19 could strengthen Tesla’s position as a leader in electric and autonomous driving – two distinct and perhaps the most powerful trends in the auto industry. At the same time, there are signs that some mainstream automakers are slowing their investments in the space as they face a sales slump and deal with significant short-term financial pressures.
For example, BMW and Mercedes-Benz have announced that they will end their automated driving alliance, for now, citing, among other factors, current business and economic conditions. Here’s the thing: the primary function of cars is to drive. Tesla’s focus on self-driving as others retreat or show poor progress, akin to a small cereal maker doubling down on the ‘sweet’ breakfast cereal category, while others say they chose to opt out. Can you believe this?
It’s not even close: we present the numbers on the importance of autonomous driving and contrast with the others in our interactive dashboard analysis: How far ahead is Tesla in the self-driving race?
Miles driven is a crucial metric for self-driving cars, as self-driving algorithms are based on machine learning, and more training data makes the algorithms smarter. Tesla continues to make solid progress on this front, reporting that its vehicles had driven a total of 3 billion kilometers on autopilot in April 2020, up from 1 billion cumulative kilometers at the end of 2018. That’s well ahead of its closest rival. , Waymo (backed by Alphabet), who reported that its test vehicles had driven 20 million kilometers on public roads in January. While Waymo has “tested” Tesla is simply doing it! The strategy is simple but bold: sell cars directly, add autonomous driving features with a whole bunch of warnings, and collect data while users are using it. Shouldn’t Google buy Tesla or maybe another automaker and do the same? See how Tesla’s value could reach $ 1.5 trillion thanks to a deal with Google.
Tesla also seems more confident about the capabilities of his system. The company has raised the prices for its fully stand-alone software upgrade from $ 7,000 to $ 8,000 effective July 1, and CEO Elon Musk has indicated that the prices could only continue to rise as capacity grows. added. Tesla is considering the idea of ​​offering its autonomous driving software as a subscription service – a move that could increase recurring revenue streams for the company while potentially increasing adoption of the package.
Is now a good time to get into the Tesla action? Yes, especially if you believe it an important Tesla metric: Tesla’s time horizon. On the other hand, for a more balanced and risk-adjusted view, see our analysis Tesla Rating: Jump into Tesla, Wait, or Get Out?
[Updated 11/6/2019]
Self-driving cars have become a buzzword in the auto industry in recent years, with companies ranging from traditional automakers such as General Motors to Silicon Valley startups such as Waymo (backed by Alphabet) seeking out to make a dent in the market. However, electric vehicle pioneer Tesla (NASDAQ: TSLA) appears to have a significant lead in this space both in terms of autonomous kilometers driven as well as the monetization of its autonomous driving technology. Having delivered over 780,000 vehicles since its inception, most of which come with pre-installed autonomous driving capabilities that users can unlock by paying for software, the company has grown into a significant autonomous driving business. In this analysis, we compare the miles traveled by Tesla with those of its competitors and measure the short-term revenue potential of its autonomous driving software.
Tesla approaches 2 billion self-driving kilometers
- The total number of autonomous kilometers recorded by Tesla has increased exponentially from 0.1 billion in May 2016 to around 1.88 billion in October 2019.
- This is a crucial metric, because self-driving algorithms are based on machine learning, and more training data generally makes the algorithms smarter.
Tesla’s autonomous driving data log is bigger than its rivals
- In 2018, Tesla probably drove around 500 million kilometers in autonomous driving in all geographies.
- In comparison, rival self-driving technology companies Waymo and GM’s Cruise have driven just 1.3 million and 447,000 miles, respectively, in California – their primary test market, which likely accounts for the bulk of their total miles. recorded.
Tesla’s lead may be even wider, as it continuously collects data from all of its vehicles
- Tesla’s autonomous driving hardware is based on mature technologies like radar, ultrasound, and passive video, which are cheaper than some competitors that use LIDAR, a laser system.
- This allows the company to equip the equipment in all its vehicles as standard, whether or not a user allows it by paying money.
- As the company’s vehicles are estimated to have driven more than 16.8 billion kilometers in total so far, this could further improve Tesla’s driving data log.
Tesla Expected To Make Over $ 1.5 Billion This Year From Autonomous Driving Software Sales
For more details on Tesla’s autonomous driving software sales, see our interactive dashboard analysis.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.