Could Google Waymo Hurt Tesla Stock?
BUZ INVESTORS Google Waymo When it comes to self-driving technology, Alphabet Inc (NASDAQ:(GOOG), aka Google, is cited as the undisputed leader.
Yet, we must credit Tesla Inc (NASDAQ:(TSLA) for bringing this technology to the mainstream auto industry before Google. The reality is that the two companies are now neck-and-neck in the race. But holders of Tesla stock must be fairly cautioned that Google’s new nitrous oxide kit (read: Lyft partnership) could give it a boost past Tesla, and likely hurt TSLA stock.
To give you an idea why this matters, Tesla’s self-driving software, “Autopilot,” is a high-margin product in terms of revenue (more on this later). What this simply means is that Tesla spends little on the software and sells it for a high price. Thus, Tesla gets to keep the huge difference as profits
What Autopilot Competition Means for TESLA Stock
Coming back to Autopilot revenue, Tesla’s gross margins on this self-driving system are roughly estimated to be in excess of 90%. Yes, more than 90% of the system’s sale price is straight-up profit for Tesla. Contrast this with Tesla’s overall automotive gross margins, which stood at a little over 27% in the latest quarter.
Now, Tesla sells two types of self-driving systems. Here’s a quick look at them.
- The “Enhanced Autopilot” system, with limited self-driving capabilities, sells for $5,000.
- The “Full Self-Driving Capability,” offering complete autonomy, can be added for an additional $3,000.
So the complete package can cost buyers, who opt for it, $8,000.
Let’s say we stay conservative in our estimates and take the basic package of Enhanced Autopilot. With roughly 90% gross margins, the company is taking home a solid $4,500 in gross profit on each sale!
Why Waymo-Lyft Partnership Is Bad News for Musk’s Master Plan
Now, Google’s Waymo has just announced a new partnership with Uber Technologies, Inc.’s biggest competitor, Lyft, to make ride-sharing fully autonomous. It’s easy to predict that this will be hurting Uber.
But you may ask now why this is bad news for Tesla. To understand that, let’s revisit Tesla Chief Elon Musk’s Master Plan, Part Deux.
The second installment of Musk’s master plan includes four key goals. Two of these goals on the list are relevant here. (Source: “Master Plan, Part Deux,” Tesla Inc, July 20, 2016.)
Bottom Line on TSLA Stock
My returning readers must already know that I’m a Tesla enthusiast. This makes it incredibly difficult for me to make an anti-Tesla pitch. But, in my line of work, neutrality is both an ethical and professional requirement.
I’ll reiterate that Tesla is still early in its journey up a high growth trajectory and, thus, has a lot of room to keep growing in the coming years. Musk’s first master plan has been successful and the second master plan is nearly halfway achieved.
|Industry:||Autos » Auto Manufacturers NAICS: 336211 SIC: 3711|
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Tesla Inc is a vertically integrated sustainable energy company. It designs, develops, manufactures and sells high-performance fully electric vehicles and electric vehicle powertrain components.
Founded in 2003 and based in Palo Alto, California, Tesla is a vertically integrated sustainable energy company that also aims to transition the world to electric mobility by making electric vehicles. It sells solar panels and solar roofs for energy generation plus batteries for stationary storage for residential and commercial properties including utilities. The Tesla Roadster debuted in 2008, the S in 2012, and the X in 2015. Global deliveries in 2016 were 76,285 units. Tesla went public in 2010 and employs about 30,000 people.
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