A $70 Billion Waymo Would Mean A Legit Tesla Threat

The new partnership between Alphabet Inc GOOG GOOGL’s Waymo autonomous vehicle technology unit and ride-hailing company Lyft may have given birth to a legitimate Tesla Inc TSLA competitor. In fact, Google could choose to spin off Waymo down the line at a valuation of roughly $70 billion, Morgan Stanley analyst Adam Jonas said.

Jonas said the combination of Google’s technology and Lyft’s data could be a serious threat to Tesla.

The Waymo Potential

Jonas reached the $70 billion valuation projection by assuming Waymo will eventually account for roughly 1 percent of global miles driven by 2030. Morgan Stanley assumes 3 million Waymo automobiles on the road driving 65,000 miles per year at an average revenue rate of $1.25 per mile.

In a separate note, Jonas and fellow Morgan Stanley analyst Brian Nowak stated the potential Waymo spin-off would add nearly 12 percent to Google's current enterprise value.

If Waymo in fact reaches $70 billion in value, it could single-handedly up Alphabet’s enterprise value by about 12 percent, Jonas said.

Jonas and Nowak added, "More miles/year and revenue/mile could lead to an enterprise value of ~$140 billion."

Jonas expects Waymo to turn its first profit by 2022 and projects the company will reach 8 percent margins by 2030.

In addition to the direct monetization of all those miles, Google could also use in-car time to generate money via advertising and partnerships.

“This consumption and the data behind it have material potential value, as we have shown that even if Alphabet monetized the base case time spent in autonomous Waymo at $0.05 per hour it would create ~$3 billion of further enterprise value,” Jonas said.

Why Waymo Is Primed For Spin?

According to the analysts, Waymo is likely to be spun off from Google due to three primary reasons:

1. Waymo's current valuation and upside opportunity.
2. Waymo has already graduated from Google X and is now a stand-alone entity for Google.
3. Waymo will face strict regulatory and legal risk in the near future, which Google may not wish to be a part of or exposed to.

Morgan Stanley recently downgraded Tesla from Overweight to Equal Weight and maintains a $305 price target for the stock. The firm has an Overweight rating on Alphabet and a $1,050 price target for the stock.