Canaccord Genuity analyst @gianarikas in new Tesla note: Tesla is increasingly a bet on autonomy.
"As a father of a soon-to-be driving teenager, I wish we could fast-forward to a time when NO person drove, and the roads were governed by robots. People are not good drivers. Sorry humanity, I love you, but you need to let go of the wheel. ~44k people died in the US in 2023 in car accidents. 44k too many. And it’s getting worse. People are running more red lights than ever. Road rage is on the rise. What will it take for many of us to stop resisting AVs and to cheer them?
We, for our part - are autonomy uber-bulls. Unabashed and unrelenting. We believe AVs are set to increase resource utilization, improve productivity, save lives, and much more. We see vehicle autonomy as one of the highest value-creating technologies to be deployed. Ever. Full autonomy not only has the potential to improve resource utilization (the key underlying tenet of sustainability) but to also enhance human productivity, decongest highways, downsize vehicle fleets, provide transport to billions of underserved, and save lives. Big stuff. Yes, the technology needs to get better and/or cheaper and regulatory needs to be clarified – but, despite failed promises, autonomy is well on its way. It’s all happening somewhat slowly, relative to previously missed timelines, but then will likely happen all at once – at least in terms of the public's willingness to let go of the wheel and the technology's ability to make it happen.
Which brings us to Elon Musk and @Tesla. They will be leaders in autonomy, in our opinion, despite some extended deployment timetables. Yes, they have taken a different, controversial technology approach – but we think the market has room for multiple solutions. We cannot stand here and say definitively that Tesla’s camera-only, neural-network approach is THE technology winner long-term. Or, that Mobileye’s system - one that uses Machine Learning/Large Language Model (LLM) components but is connected by traditional software code - is a sure technology bet. Or that Aurora’s hybrid approach, similar to Mobileye’s, with heavy use of simulated miles is THE one. What we can say, however, is that these 3 appear to be ahead of the pack and likely winners in their respective end markets (including others like Waymo).
We currently see Tesla and Mobileye as winners in the passenger AV market. Being vertically integrated is crucial to constructing a well functioning AV system. We think many independent OEM efforts will wind down over time for reasons including lack of scale, leaving room for Mobileye to gain traction as a merchant vendor to multiple OEMs. We see Tesla's system as well functioning and likely used exclusively for its own vehicle fleet for some time. We see Aurora as dominant in US autonomous trucking, which, in our opinion, is sufficient for the stock to reach our price target.
Now back to Tesla. It’s been topsy turvy lately – even by Tesla standards. Deliveries were weak – and we have written a lot on the topic (we see both demand and supply issues to blame). Underneath all the near-term issues, however, we found Friday’s news the most interesting and important long term. A lengthy Reuters article hit on Friday morning - implying that Tesla’s “next-gen” vehicle was being scrapped – driving the stock down intraday. In response, Elon Musk replied on X that: “Reuters is lying (again)”. Over the weekend, Tesla Chief Designer Franz von Holzhausen reinforced Mr. Musk's statements and advised …”just to stay tuned. Don’t always believe what you read.” In the chaos, Mr. Musk announced that on 8/8 - the Tesla Robotaxi would be revealed. What does this all mean? Well here's our take.
It could be that the company has accelerated the development of its full Robotaxi based on confidence in FSD (full self-driving). It could also be that low-cost Chinese EVs have led Tesla to believe its true competitive advantage will be based more on a combination of cost and autonomy rather than cost alone. It could also be that the Reuters article is meaningless, and there has possibly been another strategy shift altogether. Either way, we do not believe the company has completely scrapped its plans for both vehicle options; we’ll see if there are any changes to timing. We are modelling 100k next-gen vehicle units in 2026.
As we wade through the noise and news of the last several weeks – which includes the 1-month free trial of FSD to all capable US Tesla vehicles – one thing is clear despite the intensity of the muddle. Tesla is increasingly a bet on autonomy. We do estimate that there will be a near-to-medium-term return to volume growth despite the naysayers and prognostications that this is a forever broken growth story. We also estimate margins should improve and that energy storage growth should continue. All these things should help earnings growth. But – for a true breakthrough in margins above historical levels, and for the story to significantly and sustainably outperform based on sizable upside earnings revisions- we need the razor/razorblade model to ignite; we need a trajectory change in FSD adoption either through product improvements and/or price cuts. FSD is getting better all the time at what appears to us, an accelerating pace – so maybe we are close. To add – the Robotaxi reveal on 8/8 sounds like it will likely pay homage to autonomy. TONS of questions remain, but it’s likely going to be an autonomy day.
Take it or leave it, a bet on Tesla is a bet on an autonomous future. We’ll take it."
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