How can a $700 billion Robotaxi valuation save Tesla?

Tesla's market value is once again approaching the $1 trillion mark, and the most valuable business is surprising?

In the latest research report, Tom Narayan, an analyst at the Royal Bank of Canada (RBC), set a target price of $305 for Tesla, which is 4% higher than the latest closing price. This also means that Tesla, with a current market value of nearly $930 billion, is expected to once again surpass the $1 trillion mark.

The most noteworthy point is that RBC believes that in the baseline scenario, out of Tesla's $1 trillion market value, the automotive business accounts for only $93.1 billion, Full Self-Driving (FSD) accounts for $235.4 billion, and Robotaxi accounts for as much as 70%, with a valuation of $729.2 billion.

Of course, in extreme cases, the valuation of Robotaxi could also drop to zero, causing Tesla's stock price to return to $95 and its market value to return to around $300 billion.

Why?

In RBC's view, the valuation of Tesla's automotive business is equivalent to the mid-term earnings before interest, taxes, depreciation, and amortization (EBITDA) of Ford and General Motors.

The valuation method for FSD is based on the revenue in 2035, multiplying the sales by a value multiple of 10, and then discounting it back to the present twelve years ago.

As for Robotaxi, RBC combines the end-to-end revenue and the expected revenue of service providers in 2040, and similarly multiplies it by a value multiple of 10 and discounts it back to seventeen years ago.

RBC even believes that if we temporarily ignore the technological barriers, Robotaxi has enough reasons to be rapidly adopted globally.

The reasons are as follows:

1. High incidence of global traffic accidents, 93% of which are caused by human factors;
2. Too much space in city centers is allocated for parking (low space utilization);
3. Inefficient commuting for employees, and so on. RBC states that one Robotaxi is expected to replace five regular cars and solve all the aforementioned issues.

Furthermore, if the technological issues can be resolved by 2030 and regulatory problems are approved before 2035, the cost of a Robotaxi may be as low as $50,000, which is significantly lower than the expected $100,000 and even lower than the cost of a private car.

At the same time, considering that Robotaxis do not require drivers, and drivers account for 45% of Uber's expenses, the future usage price of Robotaxis may be only 55% of Uber's current prices. This will greatly increase the attractiveness for consumers to replace private cars with Robotaxis.

In addition to the strong positive expectations for Robotaxis, RBC also provides an alternative interpretation for Tesla's trillion-dollar market value: mainly because Tesla is far from achieving its long-term growth targets.

RBC predicts that considering Tesla's inability to surpass local leading brands, by 2030, Tesla's global car sales will only reach 3.8 million units, and by 2035, it will be less than 5.7 million units, accounting for only 11% of the market share, which is far from Tesla's own expectations of 20 million units per year and a 22% market share.

In comparison, although Robotaxi has lower delivery volume, its fleet can bring profits to the company. It is estimated that the end-to-end Robotaxi business can achieve a high operating profit margin of 54%.