Today is the day, folks. After years of testing and ever-extending timelines, Tesla (TSLA) is finally set to unveil its self-driving robotaxi at its “We, Robot” event this very evening.
At 7 p.m. Pacific time, Elon Musk will take the stage to debut Tesla’s so-called Cybercab – an autonomous vehicle that Musk himself believes will be the firm’s most significant launch of the decade.
Of course, Tesla isn’t the only firm laser-focused on creating the best self-driving car. As we’ve mentioned in previous issues, Alphabet’s (GOOG) Waymo and Baidu’s (BIDU) Apollo Go are each already completing 100,000 driverless rides per week.
So, what makes Tesla’s robotaxi launch such a big deal?
Well, this debut will likely mark the first time that consumers see a fully autonomous vehicle they can park right in their own driveways. And that could prove to be a powerful watershed moment for this red-hot industry.
If that’s the case, now is the time to prepare for it. So, let’s dig into what we expect to hear about this evening.
Tesla’s Robotaxi Reveal: What We Expect to Discover
We think Tesla’s “We, Robot” event will serve to demystify three important elements of this robotaxi:
- Design: the Cybercab’s appearance and underlying technology.
- Business: details surrounding the vehicle’s mass production, sales, and ride-hailing service.
- Regulation: what Tesla is doing to achieve regulatory approval.
Let’s start with the vehicle’s purported design.
We expect the Robotaxi to look something like a “living room on wheels” – perhaps an oval-shaped car with plenty of seats and infotainment screens, but no steering wheel. That’s because the car will be designed to be completely driverless. Other self-driving companies like Waymo and Zoox aim to remove steering wheels from their AVs as well, so it would be par for the course if Tesla did the same.
Now, when it comes to the vehicle’s underlying technology, Tesla has historically embraced a cameras-only approach. But we think the Cybercab will actually feature an assortment of sensors. That’s because other AV firms, like industry leader Waymo, use a combination of sensors – cameras, radar, and lidar (light detection and ranging). And considering their success thus far, it seems that a varied hardware stack is the way to go to achieve safe autonomous vehicles.
Therefore, perhaps the biggest shock of the night will be that Tesla deviates from its initial camera-centric design. If it includes other sensors in its Robotaxi, it may well improve detection, safety, and redundancy – and ultimately, win regulatory approval for these self-driving cars.
A Hyper-Profitable Business Model?
As it relates to the business model behind the Cybercab, we don’t expect to hear many details tonight.
However, we do think that Musk will offer some guidance, both on the launch of public robotaxi sales as well as the start of its own ride-hailing service. We wouldn’t be surprised if Tesla announced plans to launch its robotaxi services in 2025 – likely in Austin, Texas or Phoenix, Arizona.
Though, considering the fact that ramping production takes time, it’s likely that Musk will be less clear on guidance for selling robotaxis to the public.
But that doesn’t change the fact that we believe the economics of a robotaxi business are quite compelling.
With the launch of its own ride-hailing service, Tesla should be able to operate an autonomous transportation business that doesn’t have to share revenues with human drivers. That means Tesla could very well unlock a highly profitable opportunity in such a burgeoning space.
Additionally, in terms of the automaker side of its business, Tesla will sell these AVs to consumers alongside accompanying self-driving software. That will create two revenue streams from each Cybercab sale: a low-margin, one-time revenue stream from the sale of the actual car, and one high-margin, recurring revenue stream from the sale of the self-driving software.
If this business scales, it could very well mean a huge increase in Tesla’s overall profit margins. It would also mean more consistent profits.
Achieving Regulatory Approval May Require Compromise
And now onto what may be the least ‘sexy’ – though perhaps the most important – aspect of this robotaxi reveal: the regulation component.
Right now, very few companies have regulatory approval to operate a fully autonomous ride-sharing service in the U.S. Waymo has approval in certain cities. So does Cruise. But Tesla does not. In fact, Tesla is facing scrutiny from the National Highway Traffic Safety Administration and the Department of Justice for its Autopilot and Full Self-Driving features.
It is probably fair to say that Tesla is not on the best of terms with the regulators who will ultimately decide whether the company’s new robotaxis can drive on real roads.
So, the million-dollar question remains: How will Tesla win their approval?
In all honesty, we don’t know. It is the murkiest part of this evening’s launch for us. But we are confident that it will require some compromise from Tesla on the Cybercab’s design – perhaps the inclusion of other sensors to increase safety. After all, the AV firms that have such regulatory approval implement tech like radar and lidar to reduce potential dangers.
If Tesla does adopt different sensors to achieve higher safety standards – and taps outside suppliers to fulfill this need – that could unlock some major profit potential for investors…
Because, as we’ve mentioned before, sometimes, the best way to play a revolutionary new product launch is not to buy the stock of the headline company making that product.
Often, suppliers outperform.
The Final Word on This Robotaxi’s Potential
Overall, we’re expecting a great showing from Tesla this evening. We think this could be the night that autonomous vehicles start to go from fringe experiments to mainstream reality.
And if Robotaxi does scale into a world-changing product over the next few years, Tesla stock will soar.
But history suggests that certain supplier stocks could soar even more.
Indeed, just consider: ever since Apple (AAPL) launched the first iPhone in June 2007, Apple stock has taken off like a rocket ship. It has risen more than 6,000% in value since that time.
But do you know which stock the iPhone propelled even higher? Broadcom (AVGO) – a company that has since become an important Apple supplier. Its stock is up more than 16,000% since the first iPhone’s launch.
Another great example? Tesla’s own Model 3. Many consider it to be the most transformational electric vehicle (EV) – the car that really brought EVs to the mainstream. And, indeed, ever since its launch in July 2017, Tesla stock has absolutely soared, climbing about 1,500% higher.
But to create such a world-changing new product, Tesla was using chips from another company, Nvidia (NVDA), to power the Model 3’s unique Autopilot technology. And guess what? Nvidia stock is up around 14,000% since that vehicle’s debut.
Tesla’s Cybercab debut could offer a similar opportunity for folks investing in the firm’s all-important suppliers.
That’s exactly why, in preparation for this robotaxi’s highly anticipated launch, I just held a special event centered around this exciting debut – and how to potentially turn it into huge profits.
This reveal could start a massive rally in autonomous vehicle stocks. And I’ve found a few suppliers that could benefit in a huge way.
Catch the replay now, before this evening’s fireworks begin.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.