Ark Invest Founder Cathie Wood is known for making outlandish forecasts. In 2018, she said Tesla (TSLA -1.11%) would reach $4,000, and by 2021, the EV maker had remarkably done just that. She also said earlier this year that Bitcoin would soar to $1.48 billion, though the cryptocurrency has hovered around $30,000 for months.
She's also exceptionally bullish on the market for robotaxis, or the autonomous vehicles that are starting to take over San Francisco and other cities. Wood thinks that robotaxis globally will generate $8 trillion to $10 trillion in revenue by 2030, and she envisions Tesla as the leader in that market.
Ark now has another bold price target on Tesla, calling for it to hit $2,000 a share by 2027. That's a gain of nearly 800%, and it's largely due to its robotaxi forecast. Wood's firm expects robotaxis to make up 44% of Tesla's revenue and 64% of its earnings before interest, taxes, depreciation, and amortization (EBITDA), based on a report it released in April.
Some big assumptions
To be clear, Tesla has no autonomous vehicle business currently, so Wood's forecast assumes a successful launch of robotaxis and a ramp-up into hundreds of billions of dollars of revenue in just a few years.
Tesla's robotaxi project is predicated on the successful deployment of its full self-driving technology, which is currently in beta and has elicited a range of opinions about how well it works.
Tesla CEO Elon Musk has teased robotaxis multiple times in the past. Last April, he said the company would mass-produce robotaxis in 2024, and that the vehicles wouldn't have steering wheels or pedals. Since then, there's been no significant update on robotaxi manufacturing.
Musk has also discussed the idea of customer-owned Tesla vehicles being used as robotaxis, saying Tesla owners could earn as much as $30,000 a year by renting their cars out once full self-driving is deployed, and he envisions some kind of revenue share with Tesla.
The flaw in the robotaxi thesis
There are a number of problems with Wood's thesis for Tesla's robotaxis.
First, her $8 trillion-$10 trillion revenue estimate assumes that robotaxis will essentially replace every other competing form of transportation, which seems highly unlikely in just seven years. If you already own a working vehicle, you'd be unlikely to give it up to pay for a robotaxi ride. For comparison, Uber recorded $60 billion in gross ride-sharing bookings last year, or less than 1% of $9 trillion.
Still, autonomous ridesharing is likely to be a massive market if the technology truly works, but that leads to a better question for Wood on Tesla's robotaxi opportunity: What is Tesla's competitive advantage in robotaxis, exactly? The EV maker has lost the first-mover advantage in the industry, as several competitors are already on the road with their own robotaxis.
Tesla's brand, to the extent it could be an advantage, doesn't really seem relevant, as we're talking about borrowed rides, not owned vehicles, and there are legacy carmakers with vastly more capacity than Tesla.
The best argument for a Tesla takeover of the emerging robotaxi market seems to be that the company could flip a switch once full self-driving was ready and make every Tesla on the road a potential robotaxi. Only Tesla seems to be in the position to do something like that, but if its owned vehicles were close to that capability, why would the company have slashed prices on its vehicles several times this year?
If Musk expects a mass robotaxi platform to come soon, Tesla should instead be selling its vehicles at a premium, with the pitch that they will soon bring in income for the owner through robotaxi rentals. The price cut undermines any anticipated value incoming from new technology.
Image source: Cruise.
A better robotaxi stock to own
Rather than put all your chips in a stock that doesn't currently have a robotaxi on the road, a better choice to get exposure to this nascent industry is General Motors (GM 0.48%), which is currently trading at a bargain-basement price and owns about 80% of Cruise AV, the autonomous vehicle start-up.
Cruise is currently available for driverless rides in San Francisco, Phoenix, and Austin, Texas, and it's in the process of expanding to more than a dozen new cities. As of August, it had about 400 autonomous vehicles on the road that have driven more than 4 million driverless miles with 65% fewer collisions than human drivers in a comparable environment. Its upcoming expansion will mean a surge in the number of its vehicles on the road.
While Tesla talks big about robotaxis, GM's Cruise is doing it in the real world, collecting data and rapidly expanding. More importantly, Cruise is doing it better than any of its competitors, including Alphabet's (GOOG 9.96%) (GOOGL 10.22%) Waymo.
According to data from California, where most AV testing is taking place, Cruise had the fewest disengagements per miles driven, with just nine in 863,000 miles in 2022, or one per roughly 96,000 miles. That was more than twice as good as second-place AutoX, and much better than Waymo, at one disengagement per 17,060. A disengagement is when the AV system returns control to a human driver or the driver takes the wheel back from the AV.
Notably, Ark also owns a small position in GM, likely for exposure to the Cruise division.
Considering GM's dirt cheap valuation, investors can essentially own the Cruise business for free right now by buying GM stock, and Cruise has a clear advantage over Tesla, as it deploys to 16 cities and ramps up production while Tesla is still not operating a robotaxi. Additionally, Cruise's top disengagement rate should give investors confidence that the technology works.
For investors looking for exposure to the emerging robotaxi market, GM is a must-own stock.
