Will Tesla’s Robotaxis Come to Its Rescue?

Level 5 autonomy and driverless ride-sharing are the next capital-raisers for the Elon Musk–led automaker.

A Thursday morning news item from the investor website Seeking Alpha merely hinted at the automaker's apparently imminent downfall. One of the most bullish of Wall Street Tesla bulls regarding Tesla—and there are many—it has lowered the company's stock recommendation from "buy" to "hold."

Wedbush Securities analyst Dan Ives has reduced Tesla's target value from $365 down to $275 per share. Well, Tesla will always have Adam Jonas.

Ives apparently still sees something in Tesla that many of us away from Wall Street and outside Silicon Valley do not, because as I write this 24 hours after CEO Elon Musk's First Quarter 2019 financial results call with analysts, the company's shares were off 4.26 percent for the day, to $247.63. Not long ago, Tesla's market cap was greater than General Motors, but now GM is worth roughly $55.6 billion versus Tesla's $43 billion.

Ford Motor Company, worth $37.6 billion, should catch Tesla based solely on its rather brilliant $500 million investment in rival EV maker Rivian, but it won't. Problem is, folks, that we're still talking about an electric-vehicle revolution that doesn't show any signs of starting, despite all the new product coming from GM, Ford, Volkswagen Group, Mercedes-Benz, BMW, and Volvo's Polestar. Perhaps Toyota is smartest of all, concentrating on hybrid technology and working to develop hydrogen fuel cells. Autoline TV reports that sales of EVs from brands other than Tesla are down even more than Tesla, and that the entire EV market is falling three times as quickly as the overall auto market. While early adaptors and enthusiasts even outside Tesla's small but loyal following will start to scoop up Mustang-inspired Ford EVs and Porsche Taycans and the like, the average new-car buyer isn't likely to take a chance on an electric vehicle even if it has more than 300 miles of range and commands a premium of $5,000 or less over its closest gasoline-engine-powered equivalent, so long as gas remains cheap.

Musk told investment analysts Wednesday, "We do see strong demand for the S, X, and 3." Tesla is about to begin building right-hand-drive Model 3s for those export markets requiring them. "Overall, I feel really good about where things are headed."

Early in the call, Musk shouted out our friends at MotorTrend for having just proved the Tesla Model S's best-among-EVs 370-mile range, in a drive from San Francisco to Los Angeles at normal highway speeds and against headwinds. Plus, the trip was uphill all the way and done while pulling a horse trailer (not really, the last two things are made up).

Tesla posted a $722 million loss in the first quarter, worse than Q1 of 2018's $709.6 million loss, and far worse than its rare net profit in Q4 '18, of $139.5 million, but Musk says the company will be back in the black again by the third quarter of this year. He says Tesla will begin building both its EV semi-truck (prototypes of which, he says, have already been used to deliver a few cars) and the all-important Model Y compact crossover next year, though he declined to announce where they will be produced.

The company is trying to decide between California (its Fremont assembly plant) or Nevada (its Gigafactory outside of Reno), he said. "We expect maybe a decision on that, soon." Tooling for the Model Y has been ordered, he added.

Asked about the Model Y's daily order rate, Musk responded that, "I don't think we want to play up the granularity of orders, because people read too much into it. We won't comment on Model Y demand, because it's not in production yet."

Let's go back to April 15, 2016, when Fortune magazine reported two weeks after Tesla started taking orders on the Model 3 that it had deposits for about 400,000 cars, quoting to a presentation by Diarmuid O'Connell, Tesla's vice president of business development.

Wednesday, Musk once again described the actual manufacturing of cars to be a very hard activity to accomplish, though he touted Tesla's overall efficiency, which explains how the firm will begin production of two new models next year when it hasn't even identified their assembly-plant locations. Musk says total production this year of Models 3, S, and Y will be 500,000 units.

"In our 20 years of covering tech stocks on the Street we view this quarter as one of the top debacles we have ever seen while Musk & Co., in an episode out of The Twilight Zone, act as if demand and profitability will magically return to the Tesla Story," Ives warns in his letter to investors.

Good thing Musk still has fawning groupie Adam Jonas, auto analyst for Morgan Stanley. It was Jonas who asked Musk on Wednesday whether he might still take the company private.

"That ship has sailed," Musk told Jonas.

In a reversal from comments made in past quarterly financial analyst calls, Musk is open to raising more capital. Tesla paid $920 million for convertible bonds due in Q1, which explains in part why its cash-equivalent on hand was $2.2 billion, down from $3.7 billion at the end of 2018. Musk acknowledged that next year's new models, the Y and the semi, will need about $2.5 billion to launch.

Autonomy to the rescue!

Two days earlier, on Monday, Tesla took investors for a ride in what it claimed are Level 5 autonomous cars in a loop around the San Francisco Bay Area. (A Tesla skeptic published photographs alleged to show the company mapping the route with an external camera mounted on the back of a red Model S, and now the skeptic, who goes by the Twitter handle @skabooshka has stopped tweeting because he fears legal action. Because this is 2019, a GoFundMe has been set up on @skabooshka's behalf for possible legal fees.)

Before the on-road demo, Tesla engineers described in great technical detail the computer and chips they have developed for L5 autonomy (they've thrown out NVIDIA in favor of their own), and Musk talked about the company's plans for L5 robotaxi car-sharing. All Teslas leaving the Fremont factory now have the L5 hardware and will take only an overnight flash to upgrade the software for full self-driving, Musk said. Tesla expects that to happen by the end of the year, and in 2020 Tesla will launch a car-sharing program in select cities including San Francisco and New York, in which owners or lessees can join the Tesla Network and loan out their autonomy-enabled vehicles when otherwise not in use. Like Uber and Lyft, Tesla will take a share of the ride-share proceeds.

Musk expects his company to deliver vehicles without pedals or steering wheels in a few years, and also says as L5 takes over the Model 3 could be de-contented down to a price as low as $25,000. Federal regulators will allow Tesla to go to L5 when they see the vast data the company have been collecting on its drivers for years, although Musk allows that regulators can take a lot of time. "Probably Tesla" will be responsible for any accidents caused by the L5 autonomy, though it should be noted that a few quarterly analyst calls ago, Musk blamed Tesla Autopilot crashes on those customers who "know too much" about the technology. On Wednesday, Musk said Tesla would at some point offer its own insurance policies for its customers.

With the promise of L5 autonomy by the end of this year, as mainline automakers warn there needs to be far more regimented testing, development, and cost-cutting through mass production of components before we get to Level 3 or Level 4, Tesla is once again pitching itself to Wall Street as the sort of disrupter that will have the only car worth having when the world changes overnight.

I have been impressed with Tesla's Model S—our 2013 Automobile of the Year—and the Model 3. But Musk doesn't seem to understand that the 400,000 or so North American customers who put down deposits for the Model 3 won't reappear year after year, which is why it needs the Model Y ASAP in order to prop up demand.

Similarly, Musk doesn't understand that L5 Teslas won't put other automakers out of business overnight. Or rather, he does understand that Wall Street doesn't understand as much. That's what he's counting on for Tesla's next urgent infusion of capital.

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