Why is Tesla going “all-in” on robotaxis? Seems it would take a fair bit of money to develop robotaxis, in particular convincing skeptical regulators and the public that whatever they develop is going to work well enough. This is at a time where Tesla’s full self driving (FSD), has been met with some skepticism (source). Given the investment needed, at least several billion, one has to wonder if the money would be better spent elsewhere, on lower hanging fruit, such as updating the Tesla Model Y, some advertising, or the rebirth of the Tesla roadster. That depends on your goal, as it turns out robotaxi’s might do wonders for Tesla’s share price in the short term, while lower hanging fruit would help solidify Tesla’s business fundamentals at far lower risk.
Why would Tesla, or any other company, want to be seen as a tech company? Does it much matter what bucket analysts put your company into? Lets test this theory, below is a table of some companies, including Tesla. I have compiled using google Finance, and the companies annual statements found under investor relations at their respective websites. There is some nuance here, as some companies break out tax while others do not, but I do suspect the main argument might hold, namely tech companies stock is more valued relative to their earnings than automakers. We use the market cap (Number of shares x share price) as it more fairly captures what the market thinks a company is worth.
| Company | Market cap | Earnings | Market cap/earnings |
| Tesla | 772 B$ | 8.9 B$ | 87 |
| Ford | 55 B$ | 4.3 B$ | 12.8 |
| GM | 53 B$ | 10.1 B$ | 5.2 |
| Apple | 3540 B$ | 114 B$ | 31 |
| Microsoft | 3310 B$ | 88 B$ | 37 |
Looking at the table above, seems Tesla stock is more valued relative to their earnings, than either Apple or Microsoft, and quite a bit more than both Ford and GM, companies with similar earnings, but only a tenth of the market cap. This imperfect analysis suggests that Tesla’s market cap is quite a bit higher, when compared to other companies, a result shared by some other analysts (source, source). Also, as you can see from the table above, Ford and GM’s market cap is about 1/6th relative to earnings of Apple and Microsoft.
Thus, if Mr. Musk wants Tesla stock to go up, he needs to continue to frame Tesla more as a tech company than a car maker, hence lots of talk of Robotaxis, robots and “tech” things. Even then, he faces an uphill battle as Tesla’s market cap is about double that of what earnings of Apple and Microsoft would suggest, hence it is hard to say if there is much upside to be had. But the downside, is certainly less than descending to the Ford/GM level in terms of Market cap/earnings ratio.
Mr. Musks alternative, would be to do what traditional carmakers do to boost sales. Toyota for example, spends $1B-$2B on advertising each year (source), carmakers usually spend some money refreshing their models, Tesla could for example refresh the model Y to get some of the same features and benefits that the recent “project highland” update has delivered for the Model 3. Indeed, project Juniper is in the works, why not accelerate it and boost sales. Adding a cheaper “Tesla model 2” could also draw in budget conscious car shoppers, and frame EVs as ready for the mainstream.
Looking at the recent 2024, Q1 sales figures, a sales boost makes some sense, as 387k is less by 9 % than the 423k in Q1 2023 (source). Thus Mr. Musk might do well by pushing new models and some advertising. It would certainly strengthen Tesla’s automotive sales, which have come under strain lately, as interest rates have risen, and hence financing has gotten more expensive. Also, lots of carmakers nowadays offer an excellent array of EVs, gone are the 2015’s, where Tesla’s model S charged 10x faster than the Nissan Leaf, and went 6x further on a charge. The Hyundai IONIQ 5 charges faster than Tesla’s Model Y while offering similar range (source).
And thus we arrive at Mr. Musks dilemma. Go for robotaxis and push the share price, while sacrificing Tesla’s sales and giving competitors time to catch up to Tesla’s technology, putting Tesla’s survival at stake. Or invest in business fundamentals, refresh some models, start advertising and develop some new models. While tempting to do the latter, and improve Tesla’s core business, it would put strain on Tesla’s shareprice, which is perhaps how Mr. Musk (and most CEOs) are valued (source).
Electric car adventures 