Tesla Could Be About to Unlock a Brand-New Revenue Stream. Time to Buy the Stock?
Tesla (NASDAQ:TSLA) has been a pioneer in the electric vehicle (EV) market, and the company still generates the lion’s share of its revenue from this segment. However, the EV landscape has been somewhat uncertain in recent years, affecting Tesla’s financial results. Thankfully, Tesla has several attractive potential growth opportunities, and the company could unlock a new revenue stream by the end of the year. Here’s what investors need to know.
Image source: The Motley Fool.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Could the Cybercab soon hit the proverbial shelves?
In September, Tesla launched the Cybercab, an autonomous vehicle with two seats, no steering wheel, no pedals, and no mirrors. The Cybercab is an important piece in Tesla’s robotaxi ambition.
The vehicle is likely cheaper to manufacture than the Model Y and could generate sales over its entire useful life. The economics of Tesla’s robotaxi business could be much more profitable than its consumer EV sales. Here is why.
Tesla makes a significant amount of money every time it sells an EV, but annual sales after that are fairly modest — they come from the $99 per month subscription to the company’s Full Self-Driving (FSD) software. But Cybercabs, if used extensively, could generate thousands of dollars in revenue each year.
Suppose each Cybercab accommodates 10 rides per day at an average price of $15 — that’s $150 every day, or $54,750 per year. And let’s assume a 10-year useful life; that’s $547,500 over the car’s life. That’s far more in sales than what Tesla can make from its most popular car, the Model Y, over its entire useful life.
Our assumptions might turn out to be wrong, but the potential for Tesla’s robotaxi fleet is there, and it helps explain why so many investors are excited about the company’s future. However, Tesla has another plan in mind. In addition to running its own fleet of Cybercabs, the company wants to sell them to consumers and allow them to operate their own fleets.
It intends to start selling the Cybercab by year-end. Tesla could then generate revenue from commissions on every ride booked through its network, or perhaps from FSD subscription fees, or maybe from repair and maintenance, although the company has not indicated that yet.
Whatever the case may be, selling Cybercabs would allow the company to combine one benefit of its EV business — upfront revenue from the sale of a car — with the perks of its robotaxi fleet. There is also the possibility that Tesla will eventually sell its Cybercab to large corporations for a variety of purposes, such as delivering packages.
We are not there yet, of course, but the point is that Tesla’s Cybercab could unlock highly lucrative monetization opportunities.
Regulators might have a word to say
Tesla’s master plan might not go without a hitch. Shortly after the company launched the Cybercab, it became the subject of a safety probe by the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA). Here is the short version. U.S. law allows automakers to self-certify compliance with federal vehicle safety standards.
But those standards were designed for human-driven vehicles and generally require controls such as steering wheels and brake pedals. The NHTSA is investigating whether Tesla properly self-certified its Cybercab, which lacks these controls, potentially forcing the company to seek exemptions, modify the vehicle, or delay its commercial rollout.
We aren’t there yet, but it’s a real risk worth monitoring for investors. My view is that, even with some setbacks, Tesla will likely be allowed to keep its Cybercabs on the road eventually, especially since the company is prioritizing safety. There has never been a fatal accident involving Tesla’s robotaxi fleet.
Meanwhile, the fleet is growing rapidly. As CEO Elon Musk pointed out, the Cybercab fleet in Austin has grown by a factor of 10 since its launch in September. Over the next few years, it could maintain a decent pace of growth, and provided utilization keeps up, revenue from this business could start meaningfully contributing to the company’s top-line.
But does that make the stock a buy? Not in my view, since the market has already factored the success of the Cybercab into the share price. Tesla is a great business, but at 159.8x forward earnings, and given the risks it faces from regulators and competitors, the stock looks a bit too risky.
Missed AI’s “Act 1”? Act 2 Could Be 14x Bigger
Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005.
But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout, a massive technology build-out that Google’s CEO says could be more profound than fire or electricity.
While everyone watches the chip designers, one “backbone” company provides the critical technology that Nvidia and AMD literally cannot function without. We’ve detailed this under-the-radar player in our new AI Playbook.
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
Tesla Could Be About to Unlock a Brand-New Revenue Stream. Time to Buy the Stock? was originally published by The Motley Fool