Elon Musk's Robotaxi Launch Just Sent Tesla Stock Higher -- What Happens Next?
Elon Musk has been teasing a robotaxi service from Tesla (NASDAQ: TSLA) for years. The wait is over. Tesla's autonomous vehicles -- armed with remote drivers that can step in at any moment -- finally hit the streets of Austin, Texas, this month.
The initial rollout has been bumpy, with several viral videos highlighting safety concerns. But that didn't stop Tesla stock from popping 7% on the day of the launch.
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Shares have since given back some of the gains, but the question remains: What happens next? Is Tesla about to catalyze a $10 trillion global robotaxi market, as some experts believe? Or is the launch simply a game of smoke and mirrors, with little substance behind it?
The answers to all these questions may surprise you.
These experts think robotaxis are the future
Cathie Wood, the leader ok Ark Invest, has been a big fan of Tesla's stock for years. She's long been known for her incredibly optimistic predictions, but her projections for the global robotaxi market have raised a lot of eyebrows. "We think US$8 [trillion] to US$10 trillion for the entire autonomous taxi opportunity throughout the world, from almost nothing," she told investors at a conference in March.
The cause? Not Tesla's launch event in Austin, but rather the momentum of today's artificial intelligence (AI) revolution. "That's how quickly AI is going to cause these things to happen," she stressed.
What could this mean for Tesla? According to Wood, everything. She thinks 90% of Tesla's market cap will eventually stem from its robotaxi division, helping propel the stock price to $2,600 per share within five years. The average stock price prediction from Wall Street, for reference, calls for a share price of just $320 by the end of 2025.
Wood isn't the only analyst impressed with the potential of robotaxis. Wedbush analyst Dan Ives recently took a ride in one of Tesla's autonomous vehicles, coming away fairly impressed. "Going into it, we expected to be impressed," he later told clients. "But walking away from it, all there is to say is that this is the future."
Ives has a $500 price target on Tesla -- among the highest of any analyst. He thinks that the robotaxi opportunity alone could add $1 trillion to Tesla's market cap by the end of 2026.
Ives concluded:
Taking a step back, we view this autonomous chapter as one of the most important for Musk and Tesla in its history as a company...as we believe the AI future at Tesla is worth $1 trillion to the valuation alone over the next few years. There will be many setbacks...but given its unmatched scale and scope globally, we believe Tesla has the opportunity to own the autonomous market and down the road license its technology to other auto players both in the U.S. and around the globe.
Wood and Ives are extremely optimistic about Tesla's autonomous driving aspirations. But will Tesla benefit as quickly as they seem to believe?
Will this really add $1 trillion to Tesla's market cap?
Investors should be very cautious about ascribing a huge valuation to Tesla's robotaxi business. Other companies including Uber, Amazon 's Zoox, and Alphabet 's Waymo have been investing in this space for years -- with very little to show for it. Alphabet alone has poured billions of dollars into its self-driving business, and yet it likely remains unprofitable. Amazon, meanwhile, just opened a new factory this year that will be producing its own self-driving cars, adding more competition to this already crowded market.
Still, robotaxis and self-driving vehicles as a whole will eventually become a large part of society. A rapid reduction in costs, combined with rapid innovation around artificial intelligence, make that a near certainty. But who will win and how the industry will take shape is far from certain. And as analyst Dan Ives cautioned, there will be plenty of bumps along the way.
Buying shares of Tesla for the robotaxi opportunity is a reasonable thing to do. Just know that this story will be measured in decades, not years.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Tesla, and Uber Technologies. The Motley Fool has a disclosure policy.
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