Third party revenue share dampens Tesla robotaxi value outlook

Equity firm RBC Capital Markets has lowered its price target for Tesla, citing a lack of clarity around both the size and share of revenues from a future robotaxi business like the one touted by CEO Elon Musk.

RBC lead automotive analyst Tom Narayan says that the downward revision from $292/share to $227/share comes as a result of his bearish outlook on the size of potential revenues for robotaxis owner-operators, as well as concerns about how revenues may be split in what he believes will eventually be a crowded marketplace.

"We look at what pricing would be in a world of robotaxis and we realised [...] that pricing will actually be much lower," Narayan explains.

Tesla's 8 August robotaxi reveal has been shrouded in mystery since its surprise announcement. But, while Narayan believes that Tesla's core autonomy software will be sound, the robotaxi project will remain in a trial phase for some time until surrounding infrastructure catches up.

"I do think on 8 August, we will get an announcement that we will start seeing some actual near-term deployment of robotaxis, but it will be in cities like we have seen from GM Cruise and Waymo," Narayan says.

Despite the uncertainty about what to expect in early August, Deepwater Asset Management CEO Gene Munster also believes that a clearer picture is starting to form around what exactly Tesla will unveil.

"The Street is coming in line with my May preview to expect three new vehicles, which at this point is all but certain.," Munster says.

Open questions

While Musk insists that droves of Tesla customers will jump at the chance to make their EV a monetisable asset through offering it as a robotaxi, there has so far been a conspicuous lack of projections for how viable Musk's proposed system will be and what sort of revenue a Tesla owner could expect to make from the venture.

Narayan, however, thinks that while prices for rides in Tesla robotaxis remain unknown, third party companies will eventually eat into a material chunk of this value.

"We increased the value that we think will go to the app companies — the Ubers, the Lyfts, as a higher revenue share than I was assuming previously," he says.

Tesla's current plan is to own and operate an unspecified number of its own robotaxis, with the remainder owned and operated by private Tesla customers. Tesla is not currently envisioning a situation in which its robotaxis will be operated by third party fleet operators, although this remains a possibility.

Narayan is concerned, however, that in a robotaxi marketplace where Tesla is only one amongst many players, third party app makers will continue to eat into vehicle owner / operator revenues.

"Tesla is going to make its own app, but we think that some of these other app makers who already own customers are going to have a lot of power as well," Narayan says.

Narayan recently issued the eye-catching prediction that Tesla, in its shift towards AI and robotics, may stop making cars altogether. This prediction was made, however, before Tesla's current version of its robotaxi plans were public.

Narayan has accordingly long boasted one of the highest price targets for Tesla amongst analysts, and he says that he remains bullish on the firm, despite the downward revision of RBC's target and open questions about the value thesis of the robotaxi project.

"We still love robotaxis and we still think it is going to be the biggest contributor to value," but warns, "you are not going to get this on a mass scale for years, if not decades out."