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Speculative Tesla owned Uber-like service impact on Tesla's Mission and Valuation?

Discussion in 'TSLA Investor Discussions' started by SteveG3, Aug 6, 2015.

  1. SteveG3

    SteveG3 Active Member

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    First, to be clear, this is speculative exploration. Elon did not say Tesla will create their own Uber-like service yesterday. I don't see it as a material catalyst for the stock at this point.

    That said, I've started thinking about how profitable such a service could be and how it could push forward the mission of Tesla Motors, and my initial quick look suggests to me it is likely a VERY compelling opportunity for Tesla. I thought we could try to flesh this out.

    I just started with the idea that they might go for a Model 3 or smaller car for massive urban centers, like NY, London, Tokyo, Beijing, etc. Given the vehicle's usage, it may be cheaper to make than a privately owned Model 3.

    I lived in NY for years... and a $5 cab ride for 15 minutes, or about 3 miles, of NY driving would be a very good value ($0 Tesla tip included). As a quick reference, just getting in a cab without going a foot costs $2.50, and costs $.50 per minute when stopped or in slow traffic (details on NYC cab fares, with various surcharges and per 1/5 mile rates at the bottom of the page). So, that 15 minute ride in a cab in NY would be at least $12 or so with tip and surcharges.

    My quick estimate is that in these huge urban centers, in a day at the rate I've suggested, such a vehicle would bring in about $180 (I assumed 50% usage for 12 hours of the day, and 25% usage the other 12 hours).

    That's $65,700 a year.

    What are the costs? The car itself, $30K (possibly less given it's intended use), but, of course only for year 1. Some kind of refueling and service centers. The cost of programming and maintaining the application for the service. Insurance. License to offer cab services (can be very expensive, but there would be an environmental payoff to the cities that might help here).

    These are quick numbers I looked at, but it seems potentially a hugely profitable business. Think about the return once the car has been paid for... or from a different perspective, a single conventional cab probably pays two drivers' salaries, and contributes profit to its owner, each year.

    What about Tesla's mission?

    1) If it were a massive new profit center, it would greatly augment Tesla's ability to invest in battery and vehicle plants.

    2) If it is extremely profitable it would also spur the programs at Google and likely Apple. Anything pushing forward Google and Apple's involvement with EVs will be a huge validation and incentive for incumbents to join in.

    3) It would replace gasoline vehicles and their emissions in dense urban areas. There are likely complications here though, as there may well be a concern about such a cheaper option moving some people from mass transit to individual vehicles.

    4) It would be a built in market for Tesla to expand more confidently, and offer an easy place to move refurbished or traded in battery packs.

    5) It would expand the amount of first hand experience consumers have with EVs.

    I never quite got why Elon was so determined to lead the way on automated vehicles. Perhaps such a service has been part of what Elon's seen for years. It also fits nicely with recent Tesla comments about the goal of a million mile drivetrain. What's more, when Elon said he saw Tesla getting to Apple's market cap by 2025, I looked at stationary storage and the vehicle business and it seemed to me Elon would have to invent a new chess piece to grow so big so fast... there might be enough demand for those businesses, but Tesla (or anyone frankly) just doesn't look capable of scaling up that fast when you think about the number of battery and vehicle factories needed. I even started a thread at the time about the idea that Elon's Apple comment may mean he has a new chess piece we don't know about,


    http://www.teslamotorsclub.com/showthread.php/42586-What-Would-It-Take-for-Tesla-to-Reach-Apples-Market-Cap-in-2025


    Here's that list of NYC cab rates,

    Metered Fare Information
    • The initial charge is $2.50.
    • Plus 50 cents per 1/5 mile or 50 cents per 60 seconds in slow traffic or when the vehicle is stopped.
    • In moving traffic on Manhattan streets, the meter should “click” approximately every four downtown blocks, or one block going cross-town (East-West).
    • There is a 50-cent MTA State Surcharge for all trips that end in New York City or Nassau, Suffolk, Westchester, Rockland, Dutchess, Orange or Putnam Counties.
    • There is a 30-cent Improvement Surcharge.
    • There is a daily 50-cent surcharge from 8pm to 6am.
    • There is a $1 surcharge from 4pm to 8pm on weekdays, excluding holidays.
    • Please tip your driver for safety and good service.
     
  2. austinEV

    austinEV Active Member

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    Good analysis. I think it is super clear it is a good business, and a natural fit once you have self driving cars. For my part, I consider this all non-news because I always figured that TM would have the option of deploying a uber-type service. Or rather, if you believe self-driving cars are coming, ANY car company could. UBER or taxis will simply be obsolete across the board. When I heard the Uber CEO say he wanted to buy all of 2020's production I thought, "yeah right. Your company will be worthless in 2020." Whether it's Tesla or any other maker, making a car self-driving is 99.999% of the work of making an automated taxi service. Adding on dispatch and payment is an afterthought at that point. So what does Uber think is going to happen? Tesla will make a self driving car, doing 99.999% of the work and have Uber slap their branding on a car, add their website and take all the profit? Tesla can just do that last 0.001% and take all the business.

    When Elon refused to answer that question, I heard it as "of course we would just do it at that point." But, he has zero need to boast about such future business endeavors right now.
     
  3. ludicrousspeed

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    I never even thought about Tesla providing a driving service after reading the Uber article when it was reported. The way Musk answered may imply that they've thought about it and he definitely didn't rule it out. This could be wishful thinking, but the new Charger Prototype video that came out today could be technology they've been developing mainly for driving services. Taxi/Uber customers obviously don't fill up gas cars, so who would charge Teslas? It has a long way to go but making a charger like that requires a lot of effort and I'm not sure if they'd pursue it just because it's "cool."
     
  4. ecarfan

    ecarfan Well-Known Member

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    Speculative Tesla owned Uber-like service impact on Tesla's Mission and Valua...

    To me that analyst's question, and Elon's response ("That is a very insightful question") was the the most interesting part of the earnings call. He was right not to provide an answer.
    Oh yes they would. [emoji3]
    It is possible that Elon had not thought about the idea of Tesla becoming a ride service company and the question made him realize that it was worth considering at some point in the future, so it was best to say nothing.
     
  5. SteveG3

    SteveG3 Active Member

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    So, maybe for some time you've been on to one of those cards Tesla's not been showing us.

    I come back to the idea that even with massive demand and resources to pay for expansion are available, it's extremely hard to see Tesla going from GF 1 ~2020 to ~10-20 GFs and 5-10 new vehicle plants by 2020. I think that's what it would take for Apple Market cap, and I don't think anyone or any company could oversee that kind of volume of massive infrastructure building. I really think it's very probable there's some "new chess piece" and this Uber type business seems like a terrific cash generating chess piece. It's just to hard to do it operationally via stationary storage and vehicles alone even if there is market demand.

    fwiw, here's that chess piece comment Elon made years ago,

    "Business is like a multidimensional probabilistic chessboard. The rules aren't set, and the same moves don't always make you win. A lot of people can be really good in a set-piece battle; my biggest differentiating skill is I can invent new pieces."

    I agree about it making sense for any manufacturer who becomes capable of making an autonomous car. Like you say that is by far the biggest piece of the puzzle.

    Beyond just being more adventurous than the incumbents, Tesla still does have a few advantages in the field...

    -lower fuel cost for EV vs. ICE
    - simpler, much longer lasting, and cheaper to maintain drivetrain than ICE (certainly by 2020 I hope Tesla has that down)
    - EVs environmentally far more attractive to local residents, and governments, so may be incentivized (or ICE carbon taxed, etc).
     
  6. RichardL

    RichardL Member

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    There was a very good talk at Connect about how compelling the financial case for such a service is and how disruptive it could be - he did the analysis of how much a car would have to cost in order to require Uber's current cost per mile, and on the other hand, how much that cost could drop as the cost of the autonomous vehicle dropped, while keeping the same profit margin.
     
  7. SteveG3

    SteveG3 Active Member

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    Interesting... was the talk by someone here at TMC or outside?
     
  8. bh1783

    bh1783 Member

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  9. Thumper

    Thumper Member

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    The concept fits with the new metal charging snake. An autonomous car needs autonomous charging.
     
  10. Quant

    Quant Member

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    Credit to Elon for not answering the question! With Steve Jurvetson and other Silicon Valley types on the Board, I am sure Elon is wondering how come after so many years building something really great at Tesla, and manufacturing it from scratch, Uber is already worth about than 2 times Tesla's market cap! Must make Musk mad! No wonder he is not returning the calls of Uber CEO!

    I say take on Uber, straight up!

    But, do it in stealth mode! It's gonna be about 5 years before a fully autonomous car is approved by the various federal and govt entities to surf the roads and freeway without any humans on board.

    I'd like to see Tesla put a team together to build something that would put governmental and public at ease, for example some sort of manned central post which monitors all Tesla driverless cars in real time , kind of like a ATC control tower, but with less staff and less cost. With greater automation and AI built in to real time monitoring and control.

    i suggest a full line up cars from S, to X and Model 3 versions and let customers have a choice at the time of booking and offer a great price.

    The numbers would be far greater than suggested above, on a per car basis, and this would actually help with the broad customer education, and market recognition by a worldwide target population. NY cab drivers are not buying medallions for a million dollars and getting such low annual revenue numbers, as suggested above!

    Also, given Tesla's nationwide super charger network on the highways coast to coast, there would be great demand and great revenue opportunity in long distance services as well.....where people have to rent hotels so they can rest.

    Overall, if I were Elon ( and I am not even 1 PC of his smarts ) , I would put a team of about 25-50 smart guys, engineers, business model experts, logistics experts etc to design a strategy and business plan to take Uber head on!

    Given Lyft's 2015 recent capital raise round that valued it at about $2.5 Billion, maybe even buy out Lyft for $5-$7.5 Bilion.

    Its a classic build vs buy decision, but at this time, I would say just build your own and leapfrog Uber and Lyft 3-4 years from now!

    smoke them I say!

    yeah, do the capital raise ( another 1.5 Billion $ of equity) and use up to $0.5 billion to take on Uber!

    Could return 10 to 20 fold minimum in 3-4 years in implied incremental market cap to Tesla once launched!
     
  11. tkizzy

    tkizzy Member

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    So here's an interesting take. Elon is about making the world better. Cramming the streets full of cars, whether they're electric or not, would be "bad" for the world - congestion etc. Having dedicated fleets that don't function outside of their taxi duties would do just that - congest the world. A more efficient model would be to have multi-purpose vehicles that were both personal and livery.

    What if there was a future subsidized Tesla purchasing model where your purchase cost went down dramatically because you agreed to make your car available for automated livery services. You made a commitment for your car to be available a certain number of hours a month in exchange for the price decrease. Your car would be back home and charged at a recurring time you specified. Alternatively there could be a pricing tier where, in addition to a steep discount, you also share in some of the profit. You can always "call your vehicle home" if you need to get somewhere, and if for some reason your vehicle is on a longer trip, Tesla would send another fleet/personal hybrid-purpose vehicle to you at no charge.
    -obviously the vehicles would charge themselves accordingly and take trip distances into account with charge state before having a specific vehicle pick someone up, and if there was no destination entered there would be a minimum charge amount for a vehicle to pickup a passenger with a unknown destination. Also, tesla would take care of service as part of this plan. Even if they barely break above even with this model, they're still fulfilling their mission and making the world a better place, incentivizing sales of their vehicles in the process.

    Boom! You're welcome, world.
     
  12. SteveG3

    SteveG3 Active Member

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    #13 SteveG3, Aug 6, 2015
    Last edited: Aug 6, 2015
    Well, I was trying to be conservative, as the numbers at first blush look off the charts compelling even being conservative.

    I assumed a potential Tesla's service would only charge about 40% of the cost of a cab ride. They could certainly charge far more than 40% and still be cheaper than Uber or conventional cabs. Moreover, I assumed 50% usage for half the day and 25% usage for the other half the day, and for many cities those are probably conservative (my memory of NY is that a strong majority of cabs passing me during the day were full, but NY may have one of the most favorable usage rates).

    Bottom line, yes, my $67,000 in revenues per year might be VERY conservative. Tesla might easily make double this... all for an initial ~$30K investment in the car and annual expenses that may well be $15K or less.

    I may be missing something big here, but it really looks roughly in the scale of Tesla investing $30K in building such a car, and seeing over 100% return in year one, and perhaps, 400% return each following year for something like a decade plus... let's call it 4,000% return vs. roughly 10-15% net margins if they simply sell the car to a consumer. There may be a hole in this initial sketch of a model, but this business may be super bananas off the hook profitable to borrow a few of Elon's favorite words. Even if Tesla ends up charging half of what cabs do, it's still roughly a 2000% payout over 10 years on the initial cost to build the car. As a reality check of this gargantuan scale, consider that a $30K investment replaces a conventional cab that throws off enough revenue to support two drivers salaries, and make a profit for the owner of the cab (all at a much higher cost of fuel with ICE cabs in congested urban driving conditions). Thus, it seems reasonable that Tesla could make something like $60-120K a year off each car in such a service.

    If Tesla merely dedicated 10,000 cars to such a program it could result in $500 million to a billion in profits a year. 100,000 vehicles could mean $5-10 billion in profits. For perspective, that 100,000 vehicle profit estimate is roughly the equivalent of Tesla selling 1-2 million Model 3 per year for a decade at $5K profit each. This just seems like a staggering opportunity.

    The one potentially large challenge to this business would be requirements to buy "medallions", basically the right to operate as a cab. However, the little bit I've been reading today, some cities have moved away from this, and the market for medallions, which have been as high as $1 million has been dropping and may fall steeply in coming years. The initial research I've done attributes this to the emergence of Uber. Here's an article about Medallions,

    Why I'm shorting a taxi medallion lender | Crain's New York Business

    One other thing Quant... yes, this is about Tesla doing it on their own, not a partnership with Uber.
     
  13. Quant

    Quant Member

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    Re Medallions in NYC , the prices are crashing because Bloomberg set up and allowed a different set of cabs to operate in the boroughs outside of Manhattan, due to supply vs demand issues in those outer boroughs - since the yellow cabs found it to be more profitable to stay within Manhattan!

    Anyways, I can't see any Tesla operation set up as a yellow cab type operation on NYC, and so it would have to come under the NYC Livery Commission that includes limos and sedans which require a separate company and reservation/ booking prior to pick up. And these kinds of livery type services and the new green cabs in boroughs like Queens cannot pick up in Manhattan on the return. They can only bring clients into Manhattan on a prearranged basis and only Livery services can pick up prearranged rides within Manhattan ( as best I know....all I've ever been is a customer for all of them both personally and through my corporate life on Wall Street since after grad school... So I'm familiar with this now for decades).

    Finally, I can't see how an autonomous driven car could do pick ups in Manhattan without allowing its system ( in the software code ) to break current laws ( such as temporary double parking for pick up or drop off etc.) or just being able to work the traffic. I really believe this needs a human until more than say 25 PC of the cars in NYC are autonomous driven vehicles ( so that is way way into the future).

    i think TSLA for the first several years should stay clear of such cities where the only way, frankly for a yellow cab, livery service or just a john or Joan q Public to drive and manouver is to routinely break the letter of the law multiple times an hour!
     
  14. RationalOptimist

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    A fourth key benefit for a city: quieter! In one move a city could invite in a service that would immediately and v noticeably reduce noise pollution.
     
  15. schonelucht

    schonelucht Active Member

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    I am wondering what does Tesla bring to the table that is unique to them? I mean uber can just buy the cars from Tesla and run a service that is 100% the same. Both will have to finance the cost of having a huge car fleet so neither has a big financial advantage. But Uber already has the customer base which is, like every connected service, strategic advantage #1. Personally I think Tesla can make much better ROI by investing that money in expanding their car sales and production facilities. Let others deal with actually owning the cars, which frankly doesn't seem a business where you can make a big difference.
     
  16. ludicrousspeed

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    Tesla can certainly offer more attractive prices for customers. And who's to say that Tesla doesn't have a loyal customer base? If Uber can purchase these cars and still make a good profit, then it would be extremely profitable for Tesla, if they "cut out the middle man," as the analyst suggested in the question. I firmly believe that if Tesla fully pursued this opportunity, they can slowly run Uber out of business. They can also have a phone app more compatible with their cars that you can directly navigate the car, control the music, etc. By owning the self-driving cars on the road, there are numerous advantages Tesla would have over Uber, many of which are hard to even recognize this early in the game.
     
  17. SteveG3

    SteveG3 Active Member

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    Good point to raise. This may well be somewhat of an issue, but,

    1. The current warranty on the vehicle excludes commercial use of the vehicle. Uber would be on their own for finding capable and cost effective service. It's nearly certain Tesla will always have the most capable and cost efficient service, and replacement parts at the cheapest rates.

    2. I don't know the law on this... but is Tesla legally allowed to refuse a sale? This may be illegal with private individuals, but fleet sales to a business? They might be allowed to refuse. If they were legally required to sell, they likely could push out a large order a year or so, perhaps helping to get first mover advantage in key cities.

    3.as ludicrousspeed suggested, Tesla would seem better positioned to outlast Uber in a margin killing price competition. For Tesla this is one potential arm of their business... for Uber it's their bread and butter.

    Still, you do raise a good question. I wonder about the legal right to refuse an order.
     
  18. pGo

    pGo Member

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    #19 pGo, Aug 7, 2015
    Last edited: Aug 7, 2015
    Uber has so far raised $5B and is valued at higher than $50b.

    Uber Valued at More Than $50 Billion - WSJ

    If Tesla decides to come to this business, it will be 10 years later than Uber which by then should be the undisputed leader by huge margin if current situation persists.

    With current Model, Uber is just an app, and hence most of the funding goes to direct marketing, regulatory, compliance and court fees. If Uber or any other company is to own the fleet, that will require enormous upfront investment (aka yellow cab minus drivers). And for Tesla it will be a lot more to spend in marketing and making inroads into this industry. There may be new competition as well.

    Tesla owners with autonomous driving capabilities can easily offer their car to the leader Uber when they don't need the car, hence lowering the need to buy the fleet. Same can be done by Tesla, but there is a lot more to this business and which is why Lyft and others are not successful against Uber.

    My thought from what Elon said in cc is that he is really not sure and has not given much thoughts. I hope people don't start valuing this potential business as a win and add $s per share earnings just yet.
     
  19. aznt1217

    aznt1217 Active Member

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    He isn't sure because Autonomous driving needs to be perfected first for all corner cases in that respect. I wouldn't commit to a time line either. If Tesla were to do this -- I see it as part of the mission to make human's more productive. Instead of stopping "productive" work to get to where you have to go via driving... just have the thing pick you up and get you there... no worries no hassle.
     

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