When a stock rises like Tesla’s, it puts a lot of pressure on the company to keep growing to meet investor expectations. But there are flaws in some of the growth theories, and there’s one upstart in particular that Tesla should be worried about in 2021: Cruise, the General Motors (NYSE: GM) majority-owned autonomous driving company.
Breaking Tesla’s Growth Thesis
Let’s take a look at the three ways that investors generally think Tesla is going to disrupt the auto industry. These theses come from the ideas that Elon Musk expressed himself and the long-term vision he has for Tesla. But they each have flaws.
Thesis 1: Tesla the robotaxi company
Let’s start with the idea that has often been cited as a reason Tesla is incredibly valuable: its ability to build a robotaxi business. The idea of Tesla as a robotaxi operator has been around for years. Musk teased the idea, suggesting that Tesla owners could send their vehicles to work as taxis for 100 hours a week. He even suggested that the service would make a Tesla worth up to $ 250,000.
This is far fetched on many levels. The first long road is that Tesla owners who spend $ 50,000 and more on their vehicles will send them unattended looking for passengers for hundreds of hours a week. Not only would there be wear and tear on the vehicle, but also who knows what people will do in someone else’s vehicle without supervision. It seems extremely unlikely that well-heeled Tesla owners will want to risk this investment to earn a few bucks from a robotaxi service.
The other flaw in this concept is that Tesla lacks the ability to drive autonomously today. Its autopilot is a smart cruise control option for highways, but it is not capable of driving a car for miles and miles on its own. In fact, Cruise put more fully autonomous miles on the road than Tesla. According to data provided to California, where the two companies are based, cruise vehicles traveled 831,040 miles autonomously in 2019, compared to Tesla’s 12.2 fully autonomous miles. You read that right: Cruise has driven 68,118 times more autonomous miles on California roads than Tesla.
While autonomous carpooling or a robotaxi service is going to be commonplace and economical, it makes much more sense to use a specially designed vehicle with dedicated charging infrastructure rather than expecting car owners to lend their vehicles to the car. service. This dedicated service is exactly what Cruise creates with Cruise Origin.
Thesis 2: Tesla, the software company
Another option would be to sell Tesla’s autonomous driving technology to other manufacturers or even to Tesla customers. In fact, it could be a software as a service model.
The problem here is that Tesla is not the company most manufacturers would use to power an autonomous fleet or autonomous functions on mainstream vehicles. It relies primarily on vision to detect how to drive a vehicle, while most companies add redundancies such as laser LiDAR so that the vehicle can drive in rain, snow and even “see” objects that may crash. blend into the background. This incapacity was the cause of a fatal accident in 2016 involving a Tesla in Florida.
There are also companies better suited to supply this technology to car manufacturers. According to the Navigant management consultant’s assessment of autonomous driving technology, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) Waymo, Ford (NYSE: F) Autonomous vehicles and cruises are all rated much higher than Tesla. In fact, there are over a dozen companies that are rated as having better autonomous driving technology than Tesla.
Third-party sales seem highly unlikely given the number of companies building this technology and the incentive they all have to beat Tesla.
Selling to Tesla customers may sound appealing, but again, the market looks limited. Tesla recently increased its “fully autonomous driving” option to $ 8,000, and Musk said the package will eventually reach more than $ 100,000 in value. Currently, the package is not fully autonomous at all, but rather a limited autonomous driving package.
Again, if autonomous driving is Tesla’s value, wouldn’t it make more sense to build a fully autonomous vehicle? And if you are planning to build a fully autonomous vehicle, why not split the costs of that vehicle among hundreds or thousands of people to reduce travel costs for everyone rather than offering a package that makes vehicles more expensive. expensive for customers?
Thesis 3: Tesla the best manufacturer in the world
The latest bullish thesis that may hold a bit of water is the idea that Tesla will simply win as an EV maker. And it could be true. He is several years ahead of the industry as a whole and has built a dealer network that allows him to derive more value from each sale, thereby increasing margins.
What I’m wondering is how long this lead will last. Of course, traditional car manufacturers love GM (NYSE: GM), which owns most of Cruise, and Ford may be struggling to catch up with Tesla, but they’re trying, with new EV offerings like the Chevy Bolt and Ford’s recently announced all-electric F-150.
Of even greater concern could be the emergence of fully electric vehicle companies. Rivian, NIO, Nikola, and Lucid Motors are just a few of the manufacturers that have emerged over the past decade. They’re not far from Tesla’s scale and most are still in the process of developing manufacturing capability, but they’re all electric vehicles from scratch. This will eat away at some of Tesla’s inherent advantages over traditional automakers.
Tesla has yet to become the world-class manufacturer it hoped to be, still struggling with quality issues today. Traditional and early-stage automakers could make similarly convincing and higher-quality products. The high-margin, world-class manufacturer’s thesis may be short-lived for Tesla.
How Cruise could overtake Tesla
The biggest problem I see with Tesla is that it is not in the best position in the area it considers most valuable: autonomous driving.
As Tesla takes small steps towards building its fully autonomous driving system, Cruise is making full autonomy a reality. Elon Musk has been promising full autonomy for years but has not kept his promises. Cruise is expected to do so with a rideshare service in San Francisco, one of the world’s toughest driving environments, starting next year.
What’s crucial about this self-driving is that Cruise has the business model behind it. Tesla still sells cars to people who intend to own them for years, if not decades, and hopes to incorporate high-margin standalone software with the purchase. Cruise completely disrupts the vehicle ownership model. You can see it with the design of the Cruise Origin, which is supposed to be a vehicle in which people sit together and socialize while going from point A to point B. No upfront cost, garage space , installing a charger or finding charging stations for a long trip – just get in and out.
Designing a vehicle for fully autonomous driving allows Cruise to do away with the bells and whistles that increase costs for Tesla. Quick acceleration isn’t necessary, nor are the color options or fancy rims. Designs can be simple, efficient, and repeatable. And Cruise said the Origin would be designed to travel over a million miles.
Cruising is what Tesla wants to be
Elon Musk and Tesla certainly believe fully autonomous driving is the future, and they’ve been teasing their vehicle technology for years. But Cruise is thus far ahead in technology, as are competitors like Waymo.
But the main reason Tesla should be worried about Cruise in 2021 is the launch of Cruise Origin and its ridesharing service. If successful, autonomous carpooling could make vehicle ownership obsolete for hundreds of millions of people around the world. And whether it’s a physical product or self-driving software, Tesla ultimately makes its money selling cars.
Innovation and disruption can take many forms, and I think the upcoming disruption for Tesla is in the form of a business designed to make car ownership obsolete. The cruise is a perfect fit and 2021 will be a big year for the company as it tries to change transportation forever.