ARK Invest: $40,000 in net cash flow per fully autonomous Model 3

[strangecosmos]

ARK Invest analyst Tasha Keeney estimates $40,000 in net cash flow per fully autonomous Model 3 deployed on the Tesla Network. That’s over 5 years and 500,000 miles, and a price of $1 per mile (lower than Uber or Lyft).

...once Tesla launches the Tesla Network, its autonomous ride-hailing network, it could collect platform fees, similar to Uber’s model today, from every autonomous ride charged to the consumer. Given a rate of $1 per mile to the end consumer and over 100,000 miles per year per vehicle, Tesla could benefit from $20,000 in high-margin platform fees per car per year.

Over a five-year lifetime, a single Model 3 could generate $40,000 in net cash flow. Even investors optimistic about Tesla’s prospects project the Model 3 cash flow at $4,000 and one-time in nature. In effect, each Model 3 sale could generate 10 times more cash flow than investors currently understand.

Source: Tesla’s Autonomous Opportunity is Severely Underappreciated

 

[strangecosmos]

Some back of the envelope math:

• to be valued at $1 trillion on a price-to-cash-flow (P/CF) ratio of 10.64 (the long-term historical average), Tesla would need to generate $93.98 billion in annual operating cash flow
• with each fully autonomous Model 3 generating $8,000 per year in operating cash flow over 5 years ($8,000 = $40,000 / 5), Tesla would need 11.75 million Model 3s on the Tesla Network
• that means it would have to produce and deploy 2.35 million Model 3s per year for 5 years, and continue to produce 2.35 million per year to replace the 2.35 million that reach the end of their 5-year lifetime each year

Model 3 and Model Y are probably roughly interchangeable (although we don’t know for sure). So the Tesla Network fleet could be a mix of both, and these numbers would be roughly the same.

Suppose it takes until 2023 for Tesla to reach a combined global production of 2.35 million Model 3s and Model Ys. If it maintained that production level for 5 years and 100% we’re deployed on the Tesla Network, it would reach the 11.75 million fleet size by 2028 (at the latest). That fleet would generate $93.98 billion+ in operating cash flow and, it stands to reason, lead to a $1 trillion+ valuation.

The economics would change long before then, though. Cheaper electric vehicles, increasing supply of fully autonomous cars, economies of scale, and competition would push prices down from $1 per mile to ARK Invest’s estimated equilibrium price of 35 cents per mile. So, this math doesn’t remain valid through to 2028.

 

[strangecosmos]

I’ll try the math a different way.

• Bloomberg estimates that ~68,000 Model 3s have been produced so far
• I’ll assume an average of 6,000 per week will be produced for the remaining 20 weeks of 2018: that’s 187,000 total by the end of 2018
• I’ll assume an average of 8,500 per week for 2019: that’s 630,000 total by 2020
• and an average of 10,000 per week in 2020: that’s 1.15 million by 2021
• let’s say the Tesla Network launches in early January 2021
• in 2021, the existing fleet will generate $9.2 billion in operating cash flow
• I’ll say that 2021 production will be 750,000 and generate another $6 billion in cash flow
• that’s $15.2 billion total
• $15.2 billion in cash flow * 10.64 P/CF ratio = $161.73 billion valuation

This excludes Model S and X, and energy.