The Tesla Effect
April 28, 2024
This Week in The Autonomy Economy, The Road to Autonomy Index returned 2.86%, Pony.ai is preparing for a U.S. IPO, Tesla announced a ride-hailing platform and Uber appears to be under investor pressure.
The Tesla effect is real and unfortunately it is causing some investors to question Uber’s business model. When Tesla introduces and scales their ride-hailing platform, there will still be plenty of rides to go around for Uber.
The rideshare market and TAM is large. Our colleagues Eric Sheridan, Ben Miller, and team estimate that the US/Canada ridesharing industry TAM will grow at a 7% CAGR (2023-2029E) and reach over $300 bn, and that ridesharing bookings of about $44 bn in 2023 (implying roughly 20% penetration) will grow at a 13% CAGR through 2029.
With Tesla focusing its R&D efforts with autonomy to date on North America, we believe this is helpful to contextualize the market. Globally, Uber has framed the long-term global personal mobility TAM at 11.9 tn miles per year, which represents a $5.7 tn market opportunity per the company (across 175 countries).
– Mark Delaney, US Autos & Industrial Tech Analyst, Goldman Sachs | Initial framing of robotaxi opportunity, and updated FSD scenarios report, April 17, 2024
In our opinion, Mr. Market overreacted to the news last week and we soon expect Mr. Market to correct his oh so obvious misstep.
The market is a voting machine and last week it voted for Tesla and next week it will probably vote for Uber. Uber is a strategic company with an extremely bright future.
This week we were on the road and visited Aurora in Palmer, Texas. During our visit we took a ride in their autonomous truck, which performed very well. One of the highlights of our visit was seeing their perception system in action.
Aurora’s perception system is one of the best we have ever seen and we would rank it next to Waymo’s perception system. Thank you to Aurora and the wonderful Palmer team for hosting us this week.
As part of our growing content offering, we are proud to introduce, Autonomy Insights. Autonomy Insights is a new weekly 15 minute show that keeps you ahead of the trends and influences that are shaping the future of the autonomy economy.
New episodes are released every Monday on X, YouTube and LinkedIn. The inaugural episode of Autonomy Insights featured trucking industry expert and Executive Director of the Clean Freight Coalition, Jim Mullen. Mr. Mullen shared his insights into the economics of electrifying the U.S. truck fleet.
It’s important to highlight that autonomy is not just robotaxis or autonomous trucks, it’s an economy. It’s an economy that will change the world and everything we know about it.
The next AUTONOMY LEADERBOARD update is scheduled for July 20, 2024. As part of the July 2024 update, we will be expanding the leaderboard to further reflect the growing autonomy economy.
Tesla and Uber are The Road to Autonomy Index component companies
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What’s Moving the Markets
Pony.ai Prepares for U.S. IPO
Pony.ai is preparing for to sell up to 98.2 million (98,149,500) ordinary shares and list on either the Nasdaq or the New York Stock Exchange, according to an announcement on the China Securities Regulatory Commission’s website reported by Bloomberg.
As of last November 2023 Pony.ai was valued at $8.5 billion. If the IPO was today, their last public valuation would be considered frothy. Aurora, a publicly-traded self-driving technology based in Pittsburgh, PA has a current valuation of $4.68 billion (April 26th).
A nearly 50% premium valuation over Aurora in current market conditions with a limited U.S. presence is ambitious and frothy. Add in a backdrop of strained U.S. / China relations and a higher for longer interest environment, one questions the motive of why now? Why a U.S. exchange?
This is the not the first time as Pony.ai first explored a U.S. IPO. In 2021 Pony.ai sought to raise between $500 million and $1 billion at an $8 billion dollar valuation. This was prior to Beijing’s crackdown on technology companies and overseas listings which derailed the listing.
Only time will tell if the IPO comes to fruition this time around and on what exchange.
Our take: Despite the froth, there is a lot of uncertainty in the markets.
Pony.ai investor Toyota is a The Road to Autonomy Index component company
Here Comes the CyberCab, FSD Licensing and the Ride-Hail Platform
Underwhelming and another day another broken promise. This is what some analysts will tell you, but we take a different approach — ambitious and on course.
Will the CyberCab be delivered on time after it is announced on August 8th?Probably not. Will the Tesla Ride-Hailing app be delivered on time. Probably not. But why let broken timelines stand in the way of progress?
The entire autonomous vehicle industry is guilty of broken timeline promises. It’s to the point now where most of the industry will no longer give timelines. The days of saying our kids will never drive is over. The industry has matured and shifted focus to commercial operations and revenue.
Tesla on the other hand is unique in the fact that the company has a profitable revenue generating engine to fund its grand ambitions — S3XY. S3XY is currently under pressure from shrinking margins and a slowing EV market, but it’s still generating profitable revenue.
This revenue that has enabled Tesla to expand into computing (Dojo), robots (Optimus) and autonomous driving (FSD). Now it’s enabling Tesla to expand into robotaxis (CyberCab) and ride-hailing.
Just how large can the robotaxi market be for Tesla? In an April 17th research report, Goldman Sachs estimated the annual revenue opportunity as follows:
It’s a significant amount of revenue that could further accelerate Tesla’s entry into new markets, but it will take time to come to fruition.
The bottom line is that we believe Tesla is among the leaders in autonomy/ADAS technology, and in the long-term we believe that software & digital services can be a meaningful driver of its business (as we discussed in our 2030 EPS scenarios from our November 2023 report, Contextualizing Tesla’s AI and FSD opportunities).
However, we believe it will take time before Tesla can drive more significant growth in either robotaxi or FSD revenue, as we believe Tesla would need to reach at least L3 (situationally eyes-off, for example on the highway) capability with FSD to drive material adoption at $99 per month, and we think Tesla’s efforts specific to robotaxis (L4/L5) are likely in the earlier phases based on permitting requests (and this is a technology that has historically faced difficulties including with respect to R&D and regulations).
– Mark Delaney, US Autos & Industrial Tech Analyst, Goldman Sachs | Initial framing of robotaxi opportunity, and updated FSD scenarios, April 17, 2024
While it will take time, the nearest term opportunity for revenue acceleration is licensing FSD. On Tesla’s Q1 2024 earnings call that took place on April 23rd, the following dialogue occurred around licensing FSD:
Martin Viecha (VP of Investor Relations, Tesla): Okay. Thank you. The next question, had any of the legacy automakers contacted Tesla about possibly licensing FSD in the future?
Elon Musk: We’re in conversations with one major automaker regarding licensing FSD.
Mark Delaney (Goldman Sachs): Yes. Good afternoon. Thanks very much for taking the question. The company previously characterized potential FSD licensing discussions in the early phase and some OEMs had not really been believing in it.
Can you elaborate on how much the licensing business opportunity you mentioned today has progressed? And is there anything Tesla needs to achieve with the technology in terms of product milestones in order to be successful at reaching a licensing agreement in your view?
Elon Musk: Well, I think we just need to — it just needs to be obvious that our approach is the right approach. And I think it is. I think we’ve now with 12.3, if you just have the car drive you around, it is obvious that our solution with a relatively low-cost inference computer and standard cameras can achieve self-driving. No LiDARs, no radars, ultrasonic. Nothing.
Vaibhav Taneja (CFO, Tesla): No heavy integration work for vehicle manufacturers.
Elon Musk: Yeah. So, it really just be a case of having them use the same cameras and inference computer and licensing our software. Once it becomes obvious that if you don’t have this in a car, nobody wants your car. It’s a smart car.
I still remember in fact, when Nokia was king of the hill, yeah, and the cellphone is crushing. And then I saw them come out with a smartphone that was basically a brick with limited functionality. And then the iPhone and Android, people still do not understand that all the phones are going to be that way. There’s not going to be any flip phones.
There will be a niche product or home phone. Yeah. Not even exactly. When’s the last time you saw a whole book? That’s like an idea. Yeah.
Vaibhav Taneja (CFO, Tesla): In a hotel, sometimes in hotels.
Elon Musk: Yes, the hotels have them. The people don’t understand all cars will need to be smart cars, or you will not sell, or the car will not — nobody would buy it. Once that becomes obvious, I think licensing becomes not optional.
Lars Moravy (VP, Vehicle Engineering): It becomes a method of survival.
Elon Musk: Yes, absolutely, it is. License it, or nobody will buy your car.
Vaibhav Taneja (CFO, Tesla): I mean, one other thing which I’ll add is in the conversations which we’ve had with some of these OEMs, I just want to also point out that they take a lot of time in their product life cycle. They’re talking about years before they will put it in their product. We might have a licensing deal earlier than that, but it takes a while. So, this is where the big difference between us and them is.
Elon Musk: Yeah. I mean, really, a deal signed now would result in it being in a car probably three years.
Vaibhav Taneja (CFO, Tesla): That would be early.
Elon Musk: That’s like lightning, basically.
Vaibhav Taneja (CFO, Tesla): That’s an eager OEM.
Elon Musk: Yeah. So, I wouldn’t be surprised if we do sign a deal. I think we have a good chance we do sign a deal this year, maybe more than one. But yes, it would be probably three years before it’s integrated with a car.
Even though all you need is cameras and our inference computer. So, just talking about a massive design change.
– Tesla Q1 2024 Earnings Call Transcript (April 23, 2024)
It is becoming abundantly clear that Tesla will license FSD. When and if Tesla ultimately licenses FSD, we will be looking to see what the terms of the deal are and if it includes hardware.
If Tesla licenses FSD, look for Cruise and Waymo to explore similar deals.
Our take: Tesla has a lot going for it. Only time will tell if they can execute on everything.
Cruise parent GM, Tesla and Waymo parent Alphabet are The Road to Autonomy Index component companies
Uber Under Pressure?
Is the growth of Waymo and Tesla’s ride-hail platform announcement on April 23rd creating downward pressure on Uber’s stock and causing investors to give pause? Yes. But why? To us, this is a case of investors misunderstanding the autonomous vehicles market and reacting to headlines.
A majority of investors (and on-air TV financial TV commentators) still do not have a fundamental understanding of autonomous vehicles and how the technology is going to be scaled and monetized.
On Tesla’s Q1 2024 earnings call Elon Musk stated the following about Tesla’s ambitious ride-hail platform:
Something I should clarify is that Tesla will be operating the fleet. So, you can think of like how Tesla, think of it as combination of Airbnb and Uber meaning that there will be some number of cars that Tesla owns itself and operates in the fleet.
There will be some number of cars and then there’ll be a bunch of cars where they’re owned by the end user. That end user can add or subtract their car to the fleet whenever they want, and they can decide if they want to only let the car be used by friends and family or only buy five-star users or by anyone at any time they could have the car come back to them and be exclusively theirs like an Airbnb.
– Elon Musk, Q1 2024 Earnings Call, April 23, 2024
It was this remark from Elon Musk on Tesla’s Q1 2024 earnings call that turned into international headlines creating downward pressure on Uber’s stock.
Grand ambitions abound. Elon’s ambitions are giving Uber investors pause. But should they? No, Uber is a platform and it will play a vital role in the future of both ride-hailing and robotaxis as Mark Delaney, US Autos & Industrial Tech Analyst, Goldman Sachs rightly pointed out in an April 17, 2024 research note:
Uber has framed the long-term global personal mobility TAM at 11.9 tn miles per year, which represents a $5.7 tn market opportunity (across 175 countries).
Within US & Canada ridesharing specifically, our GS TMT colleagues estimate Uber & Lyft have exposure to a potential $242 bn TAM in 2024 (growing to $337 bn in 2029), based on the total US & Canada working age population. Within that, total bookings of ~$44 bn represent 20% penetration of addressable industry bookings in 2023.
At its 2024 investor update, Uber noted that it has about 150 mn monthly active platform consumers as of 4Q23 and nearly 7 mn drivers and couriers globally.
At the 2022 investor update event, Uber commented that it expects autonomous vehicles to be an increasingly important part of the transportation ecosystem, and thus Uber’s business over time. Uber also believes that lower prices through autonomous innovation will materially increase the size of the mobility-as-a-service TAM. The company estimates that reducing the price to $1 per mile will meaningfully expand the category.
Rather than building its own AVs, Uber has decided to partner with AV developers including Waymo, Motional, and Aurora. Moreover, Uber noted at its 2024 investor event that it expects to leverage a hybrid network of autonomous and human drivers in order to expedite AV commercialization while maintaining reliability and managing the consumer experience, per the company.
According to industry observers, Uber pays ~60-70% of a passenger’s pre-incentive fare to the driver, excluding any pass-through costs (e.g. tolls, city taxes, etc.)
– Mark Delaney, US Autos & Industrial Tech Analyst, Goldman Sachs | Initial framing of robotaxi opportunity, and updated FSD scenarios, April 17, 2024
When and if a Tesla’s ride-hail platform comes to fruition, Uber will still play a major role in the future of autonomy. Uber will be Android and Tesla will be Apple.
One takes a partner approach and one takes a closed garden approach. As we have seen from the smartphone market, there is clearly room for two platforms.
Our take: Uber and Tesla will both compete for ride-hail marketshare in the future, but Uber will continue to maintain a competitive advantage in the market for at least the next decade.
Tesla and Uber are The Road to Autonomy Index component companies
Scaling the RACER Program
On April 23rd, DARPA announced that the Robotic Autonomy in Complex Environments with Resiliency (RACER) program has entered Phase 2 of development.
Autonomous tanks are coming. As the military continues to invest in autonomy, new opportunities are being created for the developers of autonomous driving systems.
In our opinion autonomy companies will be soon be required to have a defense program, as investors will demand it. Andreessen Horowitz’s American dynamism investing strategy is paving the way.
Our take: Both Kodiak and Forterra have defense programs. Who’s next?
Social Buzz
Amazon is Taking to the Skies in Phoenix
The Greater Phoenix–Mesa–Chandler region is becoming innovation’s home of exploration. Waymo (then known as the Google Self-Driving Car Project) tested autonomous vehicles in Chandler before expanding broadly.
Cruise is once again back in Phoenix testing their autonomous vehicles, as they work diligently on rebuilding. Now Amazon is moving into the region with drone delivery.
Amazon under Andy Jassy is all about optimization and efficiency. When Amazon launches drone deliveries in Phoenix, they will be fully integrated into Amazon’s delivery network. Unlocking efficiencies and getting packages to their customers quickly and cost-effectively.
Our take: Andy Jassy is ushering in the Amazon 3.0 era. Amazon 1.0 was the everything store, Amazon 2.0 was AWS and Amazon 3.0 is optimization and efficiency.
Amazon, Cruise parent GM and Waymo parent Alphabet are The Road to Autonomy Index component companies
The Defacto Platform for Developing Autonomy
On April 23rd, Applied Intuition and Audi announced a partnership to create a unified solution that enables the development, validation, type approval, and deployment of autonomous driving systems for the Audi Group of vehicles.
Applied Intuition’s partnership with Audi further cements their role in the autonomy ecosystem. Applied Intuition is on their way to becoming the defacto platform for the development and testing of autonomous driving software.
If you are interested in learning more about Applied Intuition, we would recommend the following podcast:
- AI-First Approach: Bringing Silicon Valley’s Leading Edge to Global Automakers, A Conversation with Qasar Younis, CEO & Co-Founder and Peter Ludwig, CTO & Co-Founder of Applied Intuition (April 16, 2024)
Our take: Applied Intuition is further cementing their place in the autonomy ecosystem. Soon all roads will lead to Applied Intuition.
Autonomous Aircraft
Palmer Luckey has worn a lot of hats and gone against the grain many times. When he founded Anduril in 2017 after being unceremoniously fired from Facebook over his political actions, he was openly ridiculed.
Well, Mr. Luckey is now getting the last laugh now as Meta’s stock continues to outperform the broader market and Anduril continues to win big government contracts. Anduril is winning contracts because of their autonomous technology and their ability to deliver on-time and under budget.
On April 24th, the United States Air Force announced that Anduril has been selected as one of two vendors to move forward on the Collaborative Combat Aircraft (CCA) program.
The Collaborative Combat Aircraft program is for the development of autonomous combat aircrafts. Soon everything that moves will be autonomous.
Our take: Anduril is one of the most interesting companies focused on autonomy today.
The Road to Autonomy Index® / Weekly Performance
The Road to Autonomy Index® is a high-definition lens into the emerging world of autonomous vehicles. It is the world’s first and only pure-play index designed to measure the performance of the autonomous vehicle/truck market.
For the week of April 22, 2024, The Road to Autonomy Index returned 2.86%, the S&P 500 returned 2.7% and the NASDAQ 100 returned 3.99%. The Road to Autonomy Index outperformed the S&P 500 by 0.16% and underperformed the NASDAQ 100 by 1.13%.
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The Road to Autonomy & Autonomy Economy Podcasts
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Automating the Yard: Outrider’s Innovative Approach to Warehouse Efficiency
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Listen on The Road to Autonomy | Apple Podcasts | Spotify | YouTube Music
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From Boring to Billions: How Autonomy Could Transform Insurance Economics
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Listen on The Road to Autonomy | Apple Podcasts | Spotify | YouTube Music
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Autonomy Insights
Autonomy Insights keeps you ahead of the trends and influences that are shaping the future of the autonomy economy. New episodes every Monday.
$1 Trillion: The Cost to Electrify U.S. Truck Fleets
Electrifying the entire U.S. commercial truck fleet is projected to cost a staggering $1 trillion for infrastructural upgrades and charging facilities. But is this monumental investment economically viable, especially in today’s high inflationary environment?
In this insightful discussion, trucking industry expert Jim Mullen, Executive Director of the Clean Freight Coalition analyzes the harsh realities behind the push for accelerated truck electrification mandates. He breaks down where the $1 trillion price tag would go — from grid transmission upgrades to the massive costs fleets and truck stop operators would have to bear.
Watch on X | YouTube | LinkedIn
Monday, April 22, 2024
Subscribe to This Week in The Autonomy Economy™
A weekly newsletter featuring insight and commentary on the autonomy economy™ and how the financial markets are viewing its emergence.
All price references and market forecasts are as of the date that this newsletter has been sent. The Road to Autonomy is not providing any financial, economic, legal, accounting, or tax advice or recommendations in this newsletter. The information contained in this newsletter does not constitute investment advice and should not be relied upon to evaluate any potential transaction.
Inclusion of a security within The Road to Autonomy Index® is not a recommendation by The Road to Autonomy Indices LLC to buy, sell, or hold such security, nor is it considered to be investment advice.
