A year ago, it wasn’t even a blip on the long-range radar. Now it’s being treated like a foregone conclusion based as much on what Tesla Motors (TSLA) CEO Elon Musk didn’t say as what he did say to owners of Tesla stock during the third-quarter earnings call.
What’s that?
The possibility that not only will Tesla successfully build an autonomous, self-driving car in the foreseeable future, but that it will also create its own ride-hailing service to compete head-on against well-known Uber in that materializing market.
Owners of Tesla stock understandably have mixed feelings about the idea.
On the one hand, money is money, and a vehicle that doesn’t burn gasoline would be an ideal cost-effective choice for carting people from one place to another.
On the other hand, between scaling up its production, finishing its EV battery manufacturing plant and — oh yeah — trying to figure out how to turn a profit, Tesla Motors may have enough on its plate already without adding another unproven venture.
A Tesla Version of Uber?
Not that Elon Musk hasn’t had it on his mind for a while (and not that he has), but he wasn’t the one to plant the seeds of the idea in investors’ heads. A Morgan Stanley analyst named Adam Jonas gets the bulk of the credit for the rise of the premise.
Jonas first floated the idea in earnest back in September after having this brief but public back-and-forth with Elon Musk as part the company’s second quarter conference call:
“Adam Jonas: Hey, Elon, Deepak. First question, Steve Jurvetson was recently quoted saying that Uber CEO, Travis Kalanick, told him that if, by 2020, Tesla’s cars are autonomous, that he’d want to buy all of them. Is this a real – I mean, forget like the 2020 for a moment, but is this a real business opportunity for Tesla, supplying cars to ridesharing firms, or does Tesla just cut out the middleman and sell on-demand electric mobility services directly from the company on its own platform?
Elon Musk: That’s an insightful question.
Adam Jonas: You don’t have to answer it.
Elon Musk: I think – I don’t think I should answer it.”
What really solidified the idea for Jonas, however, was the Q&A he had with Musk during last week’s TSLA earnings call for Q3. That snippet from the transcript:
“Adam Jonas: Thanks, everybody. Elon, just thinking longer term here, assuming Tesla establishes itself as a leader in autonomous transport, do you see a business case for selling autonomous cars to ride-sharing firms, or can Tesla cut out the middleman and offer on-demand electric mobility services directly from the company’s own platform?
Elon Musk: I think we’d have to say, no comment.
Adam Jonas: I mean, Elon, it’s kind of unusual for you to punt on strategic questions of a long-term nature. Is this a dumb question? Or a funny question?
Elon Musk: Actually, I think it’s quite a smart question, actually.
Adam Jonas: Why – all right.
Elon Musk: But still no comment.
Adam Jonas: Okay, I won’t antagonize. Let’s move on. I mean, it’s just odd, because you normally are — I’ve never heard you punt like that. That’s all. But any case…
Elon Musk: You know…
Adam Jonas: Is it because of a competitive sensitivity, or is it because the concept itself is just too… in flux?
Elon Musk: I think there’s a right time to make announcements. And this is not that time. And nor — I mean, nor is our strategy fully baked here. So for us to state what it would be — it’s not fully baked, so there’s no — we’d prefer to announce something when we think we’ve got the full story understood.
Adam Jonas: So to saying it’s not fully baked implies there’s something in the oven, but just…
Elon Musk: Okay, we kind of need to move on.”
Awkward? Sure, and Musk never said “yes.” But, the fact that Musk never officially said “no” didn’t escape Jonas, who wrote to Morgan Stanley investors on Tuesday that Tesla Motors is apt to “more clearly communicate any potential plans for a mobility service (selling miles, not cars) to investors” soon.
Jonas added that an app to book a ride could be forthcoming within the next 12 to 18 months.
Not as Crazy as It Sounds
While Musk remains mostly mum on the whole idea, it should be noted that the premise isn’t that far-fetched. Indeed, Tesla may be able to solve one of the key failings of Uber.
Yes, an electric vehicle is far more friendly to the environment than a combustion-driven vehicle is. And, for a vehicle that’s to be driven more often than not, a battery-powered vehicle is simply more cost-effective than the alternative.
That’s not where Tesla would have its biggest edge on Uber, however. No, where Musk and Tesla could truly present problems for Uber and take a commanding lead in the ride-hailing service space would be unveiling an autonomous driving technology that reliably works.
The company’s efforts to that end have been hit and miss of late, but like any new kind of technology, the development of the so-called Autopilot is a process that will take time. Within two to three years though, Musk is right that completely autonomous self-driving cars can become a reality. When that happens and the human driver — by far the biggest hassle and headache of the equation for Uber — is taken out of the equation, the ride-sharing industry might stand a chance of consistent viability.
And as proof of the premise, CEO Travis Kalanick was recently reported to have said he’d buy all 500,000 self-driving electric vehicles Tesla says it’s aiming to build in 2020.
That is, if Tesla doesn’t keep them to power its own ride-hailing service to compete with Uber.
Bottom Line for Tesla Stock
As for whether or not TSLA is getting into the ride-booking game, though Jonas’ enthusiasm may be a bit unbridled, his broad premise is likely on target — one way or another, Musk is likely eyeing the ride-hailing industry through an autonomous-vehicles lens.
Although it remains to be seen to what extent an entry into the arena could help (or hurt) Tesla stock, electric cars, as well as self-driving vehicles, are now a permanent part of the landscape and are poised to become an increasingly significant part of that landscape in the future.
Better for Tesla and owners of Tesla stock to make that happen sooner rather than later, even if it’s still not entirely clear what that business will look like down the road.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
