Tesla's 90% Promise in 2016 Will Work


Tesla Motors (NASDAQ: TSLA  ) may be putting out nearly self-driving cars sooner than we think.

Elon Musk once again turned heads this week, telling London's Financial Times that Tesla should be able to provide a driverless experience on 90% of the miles driven within three years.

Automakers have been talking up the long-term potential of cars that can shift into auto-pilot, but no one has been bold enough to point to a timeline as early as 2016, as Musk is now implying. Nissan (NASDAQOTH: NSANY  ) pointed to 2020 last month as its goal for putting consumers into truly driverless vehicles. What makes Tesla so smart that it can shave four years off that timeline?

Well, the key here is the 90% of mileage that Musk is alluding to here. Drivers won't be able to completely zone out, nor will chauffeurs become completely obsolete. The pure driverless cars will take some time, but Tesla feels that it can cover most of the tedious driving for those that want to let technology take the wheel.

Tesla may have competition in the arena of cars that drive themselves some of the time. There are already cars that parallel park themselves. General Motors  (NYSE: GM  )  is already testing a "Super Cruise" technology that would essentially kick into autopilot on open highways. 

We can't assume that Tesla's going to run away with the entire driving-free market. However, being vocal early could help to ensure that the electric car superstar becomes the poster child of driverless cars when the subject is brought up in the coming years. 

Before one argues that a $70,000 car that drives itself 90% of the way is never going to be affordable enough to road-weary drivers, let's analyze that three-year time frame again.

Tesla filed an application to trademark the "Model E" name last month. It's widely believed that this will be the name for the next generation of Tesla after the current Model S sedan and next year's Model X crossover. Musk has discussed having a more economically priced car on the market by 2017, which just so happens to be around the time that this driverless technology becomes available. So it's possible this technology would only be in the Model S and Model X, but not the more accessibly priced Model E.

These are the wildcards that keep Tesla's market cap at a bubbly $20 billion, burning short-sellers along the way. From today's perspective, that's an outrageous valuation for a company that in reality is only selling as many cars -- hundreds a week -- as the other leading plug-in car models.

Yes, Tesla's surprisingly profitable, and its cars cost a lot more than the competition, but that's not enough. As it builds out its network of charging stations and expands its regional galleries and showrooms, we may get to thousands of cars sold a week. But that in and of itself also isn't enough to justify the $20 billion price of admission for today's investors.

But then we tack on Musk's goal of having mostly driverless cars on the road in 2016, and the more attractively priced Model E a year later. After that, the upside starts to look tremendous, given all of the brand building that Tesla has been doing in the meantime. We could go from hundreds of cars sold a week today to potentially tens of thousands a week if Tesla continues to be the brand that drivers crave both here and now abroad. If Tesla's aim is on the mark, that $20 billion market cap isn't so outrageous after all.

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Read/Post Comments (9) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 19, 2013, at 9:45 PM, jamesdan567 wrote:

    Tesla's cars cost far less than the competition over the life of the car. A Tesla S gets EPA 95Mpg whereas a BMW 7 series gets 22mpg. EV's are over 400% more efficient than ICE cars.

    Autopilot tech is a sideshow, nothing but a feature. Its irrelevant for investment analysis and is not worth discussing, in my view.

    The author sits on the fence. "...If Tesla's aim is on the mark...".

    We need people who predict the future and stand behind hard, definitive statements. There are already too many wimps who hedge everything they say. The author has not made a penny on Tesla.

    That's bright?

    I bought and publicly recommended Tesla in December 2012 at $33. When it began to rise I bought more. I have never sold. Tesla is a great investment and $20 billion is far from Tesla's peak value as the secular trend toward globally electrified transport systems plays out over the next 15 years. Buy Tesla. Or short Tesla if you feel brave.

    Many people compare Tesla's market value to Ford or Gm or Toyota. ICE car makers are worthless today. Don't believe it? Ask yourself the hard question. If you had $100mill to spend on an auto factory, would you buy one that produces the best EV cars in the world or the best ICE cars in the world? See my point?

  • Report this Comment On September 19, 2013, at 11:02 PM, thethreestooges wrote:

    Ok, that's enough! You want to take the fun of driving out of us? Why don't you just make a car-less car? Yes, a not-car. It's call public transportation, a bus. You just pay as you go. No capital or down payment needed.

  • Report this Comment On September 19, 2013, at 11:29 PM, hunter3203 wrote:

    The Tesla hype machine is in overdrive. Several automakers already have self drive cars in the works and Tesla makes headlines with an ad looking for someone to start their self drive program.

  • Report this Comment On September 19, 2013, at 11:36 PM, tstoneami wrote:

    Please, Elon, for the love of dog - do a POC on the Hyperloop. I am SURE you can figure out a way to get a tax break on it....

  • Report this Comment On September 20, 2013, at 2:18 AM, btc909 wrote:

    If Tesla puts out a 200 mile range sub 40K car it will tank the value of ICE vehicles.

  • Report this Comment On September 20, 2013, at 4:45 AM, PeterPham88 wrote:

    Model E - E stands for economy?

  • Report this Comment On September 20, 2013, at 9:53 AM, ToddRLockwood wrote:

    This is a much easier thing to implement in a vehicle that is already software-controlled and has a purely electric drive train. These advantages are already evident in the Model S cruise control which is dead accurate and responds instantaneously to sensor input.

  • Report this Comment On September 20, 2013, at 9:58 AM, drax7 wrote:

    The lease value of ice cars will be toast when model e comes to market.

    Whomever owns these leased cars will suffer. Any names to help me short these firms with way out of the money leap puts?

  • Report this Comment On September 20, 2013, at 11:01 AM, rcmansid wrote:

    The problem is that a lot of drivers in driverless cars will hate them because the car won't speed , switch lanes, honk the horn and tailgate enough for them.

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