Tesla’s CEO Elon Musk promised that the company will have a fleet of one million autonomous driving cars in the middle of 2020 on Tesla autonomy investor day, trying to mask the slowdown of vehicles sales.
Tesla would charge 25% to 30% commission fee from riders, much like Uber, Lyft and DiDi (download the 44-page report about DiDi for free) do.
Elon Musk, expects Tesla to be “approximately cash-flow neutral” as it builds up the fleet. Once enabled, Musk expects Tesla will be “extremely” cash-flow positive.
Lyft, Uber have set ambitious goals to broadly deploy autonomous vehicle technology as well. Lyft's share price has dropped 21% since its debut. On the other hand, Uber is currently aiming for USD 84 billion. The projected IPO value is slightly lower than some early projections (e.g.USD 100 million reported by the Wall Street Journal). Morgan Stanley and Goldman Sachs had pitched Uber's CEO last year on an IPO value of as much as USD 120 billion.
Everyone is counting on self-driving cars, from EV maker Tesla to ride-hailing companies Lyft and Uber, all expressing their hopes repeatedly in their statements. But we cannot see much recognization from Wall Street.
A 500 billion pitch to investors
Tesla further explained its vision on the robotaxi in a “broad investor call” held by Citigroup and Goldman Sachs, who is the underwriter of Tesla’s latest efforts to raise USD 2 billion. Musk told investors that self-driving will turn the company into half-a-trillion dollar market cap, according to Bloomberg. Its current market cap stands around USD 42 billion.
Musk said that even though Tesla drivers need to keep hands on the wheel today, that will become less necessary over time.
Musk said that competitors such as GM’s Cruise and Alphabet’s Waymo can’t catch up because Tesla has a fleet of connected cars on the road today, and a proprietary chip, CNBC reports. Hundreds of thousands of Teslas already on the road will serve as data collectors for the company as well, which help to improve its Autopilot and Full Self-Driving systems.
In addition, Teslas can be upgraded “over-the-air” with new software-enabled features and functionality, Musk also emphasized the importance of vehicle appreciation, unlike nearly every other car on the market. they will appreciate in value. A Tesla will be worth USD 150,000 to USD 250,000 in 3 years, he claimed.
Details need to be settled
According to SAE International’s standard, there are six levels of autonomous driving. The pivotal change occurs between Level 2 and Level 3, when responsibility for monitoring the driving environment shifts from the driver to the system.
Tesla Autopilot lie in the segment of Level 2, which is defined as partial automation. Under this level of automation, the driver may have to keep a hand on the wheel as a proxy for paying attention. Even Musk touted Tesla driver will not have to keep hands on the wheel in the future, but he gave us a vague description about exactly which level of automation the vehicle can achieve.
“The Tesla Network robotaxi plans seemed half baked, with the company appearing to either not have answers to or not even considered pretty basic question on the pricing, insurance liability, or regulatory and legal requirements,” Cowen analyst Jeffrey Osborne wrote.
Morgan Stanley analyst Adam Jonas repeats a common Wall Street refrain about Tesla's Autonomy Day event, saying the tech was impressive, but the go-to-market strategy was unsettled.
Musk can be too confident to tout Tesla robotaxi as there are significant competitors in the industry. Waymo, the self-driving car unit of Google-parent Alphabet Inc. has been researching the technology for about a decade. Nvidia produces the most popular AI chip GPU. Uber, Lyft and Didi have experiences and technologies in operating vehicles such as dynamic pricing, order dispatching, and route planning.
On the road of removing human drivers in commercial service at scale, we also see a significant amount of legal and regulatory risks ahead.
Self-driving is an all-time exciting topic
Uber, on the other hand, announced its deal with Softbank, car maker Toyota and Japanese auto-parts maker Denso for a USD 1 billion investment in its self-driving car unit. The investment values the division at USD 7.25 billion.
Uber has launched its Advanced Technologies Group (ATG) to focus on autonomous vehicle research. ATG was established in 2015 in Pittsburgh with 40 researchers from Carnegie Robotics and Carnegie Mellon University. ATG has primary engineering offices in Pittsburgh, San Francisco, and Toronto with over 1,000 employees. Uber has invested USD 457 million in the department and other Technology programs, up from USD 230 million in 2016 and USD 384 million in 2017.
"We believe that autonomous vehicle technologies will enable a product that competes with the cost of personal vehicle ownership and usage and represents the future of transportation," Uber wrote in its prospectus.
Lower Overhead
Overall, we see an upside potential to revenue and margins if self-driving cars become possible in the future. Major operating expenses for ride-hailing companies include sales and marketing, which take the biggest part in all the expenses, as Uber’s financials reflect. We believe that it is related to the ride-hailing companies’ asymptotic marketplace identity and low switching costs. To acquire and retain customers, incentives and subsidies are the need for Uber and DiDi. According to the Uber’s CEO Dara Khosrowshahi, autonomous vehicles could eventually reduce the price per mile for riders from USD 2.50 today to around USD 1.00, representing a 60% price cut8. Although riding in self-driving cars would lead to a decreasing fare per ride, we believe it would eventually translate to an increase in total miles traveled and a decrease in overhead costs in drivers. Thus, increased net margin will offset the shrinking fare to drive profitability.
Additional Market Size
DiDi’s cars can hardly run for more than 12 hours a day and they barely go to very low-density areas. With the availability of self-driving cars, DiDi’s market can expand from dense urban areas to the entire country, from day to night. DiDi can achieve a higher utilization rate with autonomous vehicles.
Uber recorded USD 10 billion in total revenue in its core platform in 2018, representing 20% of USD 49.8 billion in gross bookings and leaving the rest 80% for drivers. With the availability of autonomous driving, ride-hailing companies can get most of the gross bookings.
However, it is not easy to achieve that stage. Uber has been spending between USD 125 million and USD 200 million a quarter on its self-driving car unit in 2017, equivalent to between 15% and 30% of the company’s quarterly losses. Alphabet spent USD 1.1 billion on developing self-driving software and hardware between 2009 and 2015. That number dwarfs Uber’s investment.
Can Uber and DiDi afford the costs? Uber spent USD 1.2 billion in R&D expenses and USD 2.5 billion in sales and marketing expenses in 2017, representing 29.78% and 62.58% of the company’s net loss, respectively. DiDi, however, spent much more subsidies for drivers and riders in 2017 and 2018, accounting for 724% and 207.34% of the company’s net loss, respectively.
Ride-hailing companies lagging behind the driverless race?
Previously, we took a look at a load of autonomous car startups that have raised over USD 100 million. This includes Pony.ai, Momenta, and Roadstar.ai. California’s Department of Motor Vehicles released the latest batch of reports from companies testing self-driving vehicles in the state last month. This sheds some light on the process and level of road testing. We look at the number of test miles and miles per disengagement in California in 2018.
Lyft
We would say it is a little bit late for ride-hailing companies like Lyft. Lyft has filed a report to DMV but did not operate any vehicles in autonomous mode on California public roads from November 2017 through November 2018. Waymo and GM Cruise posted significantly more miles driven and lower disengagement rates than other companies. Uber logged more test miles than some of the tech startups but did not do well with respect to disengagement rate.
Lyft's Open Platform partnership with Aptiv, a leading global auto parts company, has enabled the commercial deployment of a fleet of autonomous vehicles on its platform in Las Vegas. The company have facilitated over 35,000 rides in Aptiv autonomous vehicles with a safety driver since January 2018.
"In the next five years, our goal is to deploy an autonomous vehicle network that is capable of delivering a portion of rides on the Lyft platform. Within 10 years, our goal is to have deployed a low- cost, scaled autonomous vehicle network that is capable of delivering a majority of the rides on the Lyft platform. And, within 15 years, we aim to deploy autonomous vehicles that are purpose-built for a broad range of ridesharing and transportation scenarios, including short- and long-haul travel, shared commute and other transportation services," Lyft wrote in its prospectus.
DiDi
DiDi joined a number of tech giants, including internet behemoth Google and Baidu, in a race to develop autonomous driving for public transport. DiDi has launched road testing in four cities in China and America, while the exact locations are unclear. It has acquired a license from California DMV to launch live trials of autonomous vehicles in May 2018, trying to catch up with its peers.
In addition, DiDi has realized other adjacent markets that a ride-hailing company can compete with incumbents through innovative solutions and DiDi’s customers base advantage. In order to stabilize the compliant capacity and alleviate the capacity shortage caused by regulations, DiDi issued some attempts and expanded its industrial cycle.
New energy and autonomous driving. To optimize its operational vehicle, DiDi is working with OEMs and similar new Electric Vehicle makers such as CHJ Automotive to promote new energy and autonomous driving. The two sides will set up a joint venture, which aims to produce smart electric cars in 2020, local financial news outlet Caixin quoted people familiar with the matter as saying. DiDi will have 51% share of the joint venture, with CHJ accounting for the rest.
D-Alliance. By the end of April 2018, DiDi formed an international car-sharing alliance D-Alliance, which unites industry associations and 31 OEMs to optimize design and standard formulation of shared new energy vehicles. The 31 members include Volkswagen, Toyota Motor and the Franco-Japanese alliance of Renault, Nissan Motor and Mitsubishi Motors -- plus a joint venture of China's state-owned Dongfeng Motor and South Korea's Kia Motors.
Uber
Similarly, Uber believes that the company has three attractive options with various levels of integration incorporating autonomous vehicle technologies into our network, as demonstrated by its existing partnerships with original equipment manufacturers (“OEMs”):
Toyota. Announced in August 2018, Uber expects to integrate our autonomous vehicle technologies into purposebuilt Toyota vehicles to be deployed on our network
Volvo. Announced in August 2016, Uber is working with Volvo to develop and build our own fleet of autonomous cars to be deployed on our network
Daimler. Announced in January 2017, Uber expects to enable Daimler to introduce a fleet of their ownedandoperated autonomous vehicles onto our network.
Ride-hailing companies have access to customers and autos. Since the autonomous driving is still at an early stage, we are unable to provide an answer on who is the No.1 leader, but we are comfortable to conclude that Uber, DiDi and Lyft own the most powerful databases of modern mobility. A more likely scenario would be ride-hailing companies paying a percentage to an owner of a self-driving solution at a lower cost than a human driver. To win from this transportation revolution, DiDi must gain access to autonomous vehicles or it will be exposed to risks of being upended by an autonomous vehicle player entering its market. It would still be too early to say that if Waymo deploys its autonomous vehicles and marches into China’s ride-hailing industry or it would beat DiDi. We believe operating ability and government relationship are also important in the industry.