[Editor’s Note: This story was updated on July 30 to remove incorrect information about which regulatory organization might be involved.]
Usually, when investors support the ride-hailing game, it’s Uber (NYSE:UBER) versus Lyft (NASDAQ:LYFT). If you’re a big believer in the ride-hailing business model, you’re either for Lyft stock or Uber stock, but not both. At least that’s my experience.
The other day I saw an article about Ark Investment Management’s thesis that Tesla (NASDAQ:TSLA) could do a number on both company’s business plans. If that happens, Lyft and Uber may never get to profitable status.
However, as a long-time supporter of Elon Musk and all of Tesla’s work in the electric vehicle industry, the opportunity for it to generate even greater sales by launching both an autonomous driving taxi fleet and a Lyft-like fleet with human drivers is exciting.
Again, not if you own Lyft stock or Uber stock.
A Regular Ride-Hailing Service
Ark Investment Management analyst Tasha Keeney recently argued that Tesla should launch the Tesla Network today using human drivers first, before getting approval for the full self-driving (FSD) app and autonomous robotaxis.
“…this ride-hailing network [with drivers] basically provides sort of—you know—a downside protection risk on that [bear] case. So [Tesla] still transforms their business into a software-as-a-service-like model. And we think it could be a great opportunity and Tesla should actually launch now,” Keeney stated on July 13.
Elon Musk said earlier in July that FSD would be “functionally complete” by the end of 2020. What that means in terms of regulatory approval from the National Highway Traffic Safety Administration is anybody’s guess.
In the meantime, BloombergNEF estimates that by the year 2040 there will be 28 million active robotaxis worldwide. Ark forecasts that the autonomous ride-hailing opportunity is worth $1 trillion today, $5 trillion in five years, and $9 trillion by 2029, a figure that’s higher than both the energy and automotive sectors today.
However, as Keeney points out, Tesla has a massive advantage over Lyft and Uber because its costs are much lower due to electrification, vertical integration, and it has an in-house insurance program.
Further, because people are looking for additional income right now, the Tesla Network would be an excellent supplement to their existing cash flow.
“This is an important point. The money—the income—is going to be much better for somebody using a Tesla on the Tesla Network than using a different vehicle on another network…maybe this will even incentivize people to lease Tesla’s or get loans and use them to generate income as a source rather than people that have existing Teslas now,” said “Solving the Money Problem” host Steve Mark Ryan recently.
I suppose what could happen is that you start driving a Tesla for the Tesla Network. Once fully autonomous driving is permitted by law, you stop driving and still generate income from your Tesla.
That’s a winning combination that neither Lyft nor Uber can offer.
Tesla Over Lyft Stock
The last time I wrote about Lyft stock was in April. At the time, I said its stock, along with Uber, made good bets for aggressive investors only. The biggest reason I liked Lyft was the fact it had no debt and plenty of cash to get it through the pandemic.
What I didn’t do was consider Tesla in the equation.
In Keeney’s February analysis about ride-hailing, she makes a good point about the future revenue that Tesla could generate from robotaxis.
“In the future, ridehailing could command much higher take-rates, up to 60%, as autonomous taxi networks evolve into monopolies that offer safer and more convenient rides. We believe first movers in the autonomous ridehailing space should be able to collect more data at a faster rate than their budding competitors, creating geographic monopolies with higher price points than otherwise would be the case,” Keeney wrote in February.
After reading Ark Investment’s arguments for the Tesla Network, it now makes less sense, in my opinion, to invest in Lyft when you can make a bet on ride-hailing by betting on Tesla.
Nothing personal against the people behind Lyft, but if anyone is going to figure out how to make money from ride-hailing, it’s going to be Elon Musk.
If you believe the stats about autonomous taxi fleets costing 25 cents per mile, about one third the cost of operating your own vehicle, Tesla is going to have the inside track against Lyft and Uber when it comes to this segment of the ride-hailing economy.
For this reason, Tesla’s a better buy than Lyft or Uber at this point.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
