Al Root
Shares of Uber Technologies and Lyft are taking it on the chin for a surprising reason: Tesla CEO Elon Musk.
His Tuesday evening comments about robotaxis on Tesla's first-quarter earnings conference call evening seem to have shaken investors' confidence in the traditional taxi market, where Uber and Lyft have made substantial inroads.
That concern feels misplaced, but investors are clearly worried. Through midday trading, Uber and Lyft shares were down 3.5% and 5.1%, respectively, while the S&P 500 and Nasdaq Composite were down 0.2% and 0.1%, respectively.
For starters, Musk talked up the progress his electric-vehicle company is making in developing truly self-driving cars. "Regarding FSD version 12, which is the pure AI-based self-driving, if you haven't experienced this, I strongly urge you to try it out," he said. "It's profound. And the rate of improvement is rapid."
FSD is short for Full Self Driving and is the name of Tesla's highest-level driver assistance product, which does most driving tasks most of the time. Tesla drivers can buy it for $8,000 or $99 a month.
FSD still requires human supervision 100% of the time, but the technology is getting so good that Tesla is unveiling a robotaxi concept, or "cyber cab" as Musk called it, on Aug. 8.
None of that is new, though. Musk's beliefs about autonomous driving and robotaxis have been known for a long time. The robotaxi event was announced on April 5.
Investors might have been spooked by what Tesla plans to do with the robotaxis. "Tesla will be operating the fleet, so you can think of Tesla [like] some combination of Airbnb and Uber," Musk said.
Tesla plans to operate a ride-hailing network, like Uber. Tesla owners can allow their cars to be used, for a fee, just like people who rent their homes via Airbnb.
A new entrant for Uber and Lyft to compete with sounds serious, but again, this has always been Tesla's plan.
Maybe investors were simply shaken by how close Telsa believes it is to making robotaxis a reality. "We do have some insight into how good the things will be in like, let's say, three or four months because we have advanced models that are far more capable than what is in the car," said Musk.
But even if Tesla is about to crack the self-driving code, it isn't clear that is an existential threat to Uber or Lyft. Both could buy and operate fleets of Tesla robotaxis and operate them alongside their human-powered cabs.
Buying or leasing robotaxis could be expensive, but per-ride profit margins should be better too.
New Street Research analyst Pierre Ferragu has called Uber a winner from autonomous-driving technology since 2018. "Driverless services can only be deployed in an economically viable way by existing at-scale and competitive networks of human drivers," wrote Ferragu in a recent report. "It would take decades and billions of dollars to deploy purely driverless networks."
Musk's robotaxi comments might represent an opportunity, not a threat, for Uber and Lyft. Ferragu rates both Tesla and Uber shares Buy. His target for Uber stock is $100 a share. His target for Tesla is $245.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 24, 2024 14:34 ET (18:34 GMT)
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