Goldman Sachs has recognized Tesla Inc. TSLA as a front-runner in the autonomy and Advanced Driver-Assistance Systems (ADAS) landscape, projecting that software and digital services will significantly enhance the business model of Elon Musk‘s electric vehicle (EV) empire.
The interest in Tesla's capability to sell ADAS/autonomy software has surged among investors, especially concerning its Full Self Driving (FSD) offering for consumers and its potential robotaxi services.
Tempered Expectations for Near-Term Revenue Growth from Robotaxis and FSD
Mark Delaney, an equity analyst at Goldman Sachs, stressed the potential but also the hurdles in Tesla’s path. He stated, “It will take time before Tesla can drive more significant growth in either robotaxi or FSD revenue.”
For Tesla to significantly impact the market with its FSD subscription at $99 per month, Delaney believes Tesla needs to achieve at least Level 3 autonomy, which allows drivers to divert their eyes from the road in certain conditions like highway driving.
He noted that Tesla's initiatives toward Level 4 and Level 5 autonomy, which would enable fully autonomous robotaxis, are still in the nascent stages, reflecting the typical challenges such as research and development costs and regulatory hurdles.
Pricing and Market Dynamics
Goldman Sachs has set a $175 price target for Tesla, factoring in the anticipated growth in software-related ventures such as autonomy. “We believe software and digital services would be needed to drive the 20-40% type EPS CAGR beyond 2025 necessary to justify the 50X target P/E multiple,” Delaney explained.
The rideshare market, particularly in the U.S. and Canada, is expected to grow significantly, with the total addressable market (TAM) projected to reach over $300 billion by 2029, expanding at a compound annual growth rate (CAGR) of 7% from 2023 to 2029.
The anticipated growth rate for ridesharing bookings is even more promising at 13% CAGR through 2029, starting from approximately $44 billion in 2023.
Projection of Early-Stage Robotaxi Revenue Opportunities
For illustrative purposes, Goldman Sachs has modeled potential revenues from a hypothetical Tesla-owned commercial robotaxi fleet. Assuming an average of nine miles per trip and deploying between 50 and 1,000 vehicles, the forecasted revenue per mile is between $2 and $2.25.
“A robotaxi from Tesla would likely be built on Tesla's low-cost next-generation platform and lack a steering wheel,” added Delaney.
Neutral Rating Balanced by Growth Potential and Current Valuations
While Goldman Sachs remains Neutral on Tesla stock, they acknowledge the company’s strong market position and long-term growth prospects. However, concerns about Tesla’s full valuation and weaker near-term fundamentals temper this view.
Delaney suggests that the stock could see a price range of $220-$300 in an upside scenario over the next 12-24 months, based on favorable market conditions, higher EV adoption and successful product advancements like FSD.
Conversely, a downside price target of $55-$75 is foreseen if investor sentiment wanes amid heightened EV competition, slower demand, and delays in new products and capabilities.
Shares of Tesla Inc. have fallen 37% since the beginning of the year, closing at their lowest point in almost 12 months on Wednesday.
Chart: Tesla’s Share Price Has Fallen By Over 37% Year To Date
Image generated using artificial intelligence via Midjourney.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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