Now, ARK estimates that the probability is 50% by 2025. In our last valuation model, ARK assumed that Tesla had a 30% chance of delivering fully autonomous driving in the five years ended 2024.
A human-driven ride-hail service could boost Tesla’s price target in ARK’s bear case significantly. In preparation for its robotaxi service, Tesla could launch a human-driven ride-hail network first, delivering a highly profitable recurring revenue stream and limiting the downside of a failed autonomous service. In our bear case example, ride-hail could add an additional $20 billion to Tesla’s operating profit by 2025, increasing our price target by about $500. Previously, ARK detailed that a Tesla human-driven ride-hail service would have a lower cost structure than that of incumbent companies, laying the foundation for a fully autonomous ride-hail network. Insurance boosts our price target by roughly $60 in 2025.ĪRK’s bear case now includes Tesla’s opportunity to launch a human-driven ride-hail service.
In our bull case, ARK estimates that, as robotaxis ramp, Tesla’s insurance revenues will be incorporated into a platform fee. If it were to sell 40% of vehicles with its own insurance offering by 2025, Tesla’s insurance revenues could approach $23 billion annually in our bear case. Relative to Progressive’s 13% EBIT margin in 2019, ARK estimates that Tesla could achieve margins close to 40%. Because its vehicles have better than average safety profiles, Tesla should be able to use real-time data to offer insurance in its vehicles, pricing it dynamically, lowering customer acquisition costs, and increasing margins. ARK believes that in the next few years Tesla could roll out its insurance offering to more states, underwriting its own insurance policies. Currently, it is available only in California. Partnering with underwriters, Tesla introduced its insurance product in August 2019. Given these updated estimates, along with an additional year of growth added to our model, our forecast for Tesla’s unit sales is between 5 and 10 million vehicles in 2025.ĪRK estimates that Tesla could achieve better than average margins on insurance thanks to the highly detailed driving data it collects from customer vehicles. To give Tesla credit for what we believe is its superior capital efficiency, we lowered gross capital expenditure per car in our latest model. At Battery Day, Tesla announced that its updated cell chemistry and manufacturing process would reduce investment costs by 75% over time. Note that this math probably overstates the capital required for an incremental vehicle because a portion of capex is for long-dated projects like autonomous data centers and Tesla’s vertically integrated cell factory. In 2020, Tesla spent $3.16 billion on capex, putting capital efficiency in 2021 at $10,330 assuming a 60% increase in vehicle production. In 2019, Tesla spent $1.33 billion on capital expenditures (capex) and produced 509,737 vehicles, an increase of 144,505 vehicles from the previous year, suggesting that its capex per incremental vehicle produced was roughly $9,200.
Previously we estimated that Tesla would spend $11,000-$16,000 per incremental unit of capacity in 2024. Since our 2024 analysis, we have increased our assumptions for Tesla’s capital efficiency.