Thread by @jpr007

WHAT MIGHT BE THE OPTIMAL MODEL OF ENGAGEMENT FOR TESLA IN ROBOTAXIS ?

Let us start with the practical premise that the Initial Addressable Market is the one currently served worldwide by Uber and Lyft and a few others

And recognize China as a separate significant "Wild Card"

The major capital cost of a Robotaxi Network is the vehicles themselves

If the Network is well run and the vehicles are operated profitably, then it should be possible to package 100% of their ownership up into Robotaxi Bonds which would be sold in the market

These Robotaxi Bonds would be structured to last the working life of the vehicles and make Principal and Interest payments on a quarterly basis, with the outstanding amount declining steadily over time in line with the mileage-based depreciation of the vehicles

The vehicles would be purchased at standard retail price from Tesla Automotive, including the standard FSD activation fee

Tesla Automotive would therefore be profit-neutral to selling these vehicles in the open market or to the Network

The Robotaxi Bonds would be a whole lot like the Bonds that get issued to finance Auto Loans or Auto Leases

- except that arguably they would be lower risk than such consumer loans and might be structured with zero terminal values to eliminate an important uncertainty

Using that model, we then know with certainty the biggest cost item of the Robotaxi economics

And based on our current estimates this amount would translate to $0.25 per Revenue-Mile or $0.125 per Driven Mile

- Driven Mile is the better metric for all parties

This would also allow us to make the Network Operator indifferent to using a Network Vehicle or a Tesla Owner's Personal vehicle by simply paying the Tesla Owner the same $0.125 per Driven Mile for the "cost" of their vehicle when deployed in the Network

The Network Operator would then focus on managing all of the other Direct Costs

- the Insurance cost can be optimised by continuously improving the autonomous functions, by reducing repair costs through improved vehicle design, and by improving all aspects of vehicle safety

- the Fuel cost can potentially be reduced to close to zero as Electricity costs come down with greater use of Renewables and Storage Batteries

- Maintenance costs are largely tires, which can be improved and cost-reduced over time

- and daily Cleaning costs can be improved with Scale and efficiency

The total of these Direct vehicle operating costs is currently estimated at $0.37 per Revenue Mile

- but may be possible to bring down to $0.25 per mile, giving a total Vehicle cost of $0.50 per Revenue Mile

The big challenge is then to correctly quantify and manage the Network Operator's own costs

- which currently look like $0.38 per Revenue Mile based on Uber's reported cost structure

These costs are very scale-sensitive, and Uber currently has a global scale of around 700,000 equivalent full-time Robotaxis

- so until the Network Operator can reach that level we cannot reasonably assume an ability to match these numbers

There are no obvious ways in which we can see real shared costs with other Tesla activities

- it is a very different product and service than anything else that Tesla does

- it needs its own dedicated Operations function

- it needs its own dedicated R&D function

- and it is a completely different marketing activity than Tesla's current low key and low cost marketing approach

And taken all together, these Network Costs are not trivial :

700,000 vehicles x 45,000 Revenue Miles per year x $0.38 per Revenue Mile

= $12 billion per year

With initial pricing suggested at $1.50 per Revenue Mile there would be enough money to cover all of these costs at scale, but this business could easily incur heavy losses until it reaches at least half way to the size of Uber

REVENUE AND COST SUMMARY AT 700,000 SCALE

ANNUAL REVENUES :

700,000 vehicles x 45,000 Revenue Miles x $1.50 per Revenue Mile = $47.250 billion

ANNUAL COSTS :

Robotaxi Bonds : 700,000 x 90,000 Driven Miles x $0.125 per Driven Mile = $7.875 billion

Vehicle Operating Costs : 700,000 x 45,000 Driven Miles x $0.25 per Revenue Mile = $7.875 billion

Network Operating Costs : 700,000 x 45,000 Driven Miles x $0.38 per Revenue Mile = $11.970 billion

Revenue = $47.250 billion

Costs = $7.875 billion + $7.875 billion + $11.970 billion = $27.720 billion

Operating Profit = $19.530 billion

Net Income = $15.624 at 20% Tax Rate

Valuation = $312.5 billion at 20x P/E Multiple

If we allow that it takes 10 years until 2031 to supply enough vehicles and to completely displace Uber or scale to this degree, then applying a 15% Discount rate the value of this business in 2021 would be about $77 billion