Transcription
Okay, so a pretty big piece of news broke over the weekend related to Trump, Tesla, Elon Musk, and Tesla stock. This news made Tesla go up, as of the time of this recording, by 8% or 25 bucks, which is a very, very large move for the kind of size that Tesla is as a company. This news actually has a lot of long-term implications, not just for Tesla but the entire automotive sector.
Members of President-elect Donald Trump's transition team have told advisers they plan to make a federal framework for fully self-driving vehicles one of the Transportation Department's priorities, easing U.S. rules for self-driving cars.
Now, the reason why this is such a big deal is that in the United States, the regulation of self-driving cars and how they can operate, where they can operate, right now is driven by state and local laws. That's why you have things like Waymo operating in places like California and Texas. Companies have to wait for the state legislature or their local government to give them a green light to be able to operate self-driving cars. Companies that are well-positioned for this regulation change—from a scale perspective and from a technology perspective—are going to benefit tremendously.
In this video, I'm going to outline why this is such a huge deal for Tesla specifically. None of this is going to be investment or financial advice; I just want to talk through what I'm seeing in case you find this helpful.
The reason why this is such a big deal is Tesla specifically has a very unique set of factors going for it. The way they're solving for self-driving technology is very different from any other automaker. Manufacturers like Waymo, Zoox, and others use a host of different sensors like LiDAR, sonar, ultrasonics, and a bunch of other things that are very expensive, making it very difficult for them to make a car under $100,000 that can drive itself.
On the other hand, Tesla has an approach that allows them to make cars in the millions of units per year that can also drive themselves. The reason why is that they've chosen to tackle this problem with a lot less expensive sensors. Instead of going with LiDAR, sonar, and ultrasonics—something they've tried in the past—they're now just going with eight cameras around the car and an inference computer in the car. That’s a fancy way of saying it's a very smart computer, an AI computer.
They have an AI brain at headquarters that basically figures out how to drive by taking footage from the cars in the fleet, which Tesla has about 7 million of out there in the world. It grabs footage from the cars, feeds it through an AI brain, which watches a bunch of cars just driving, and learns how to drive. Then it sends that code down to the cars.
So, if you're a Tesla owner today, you know that your car right now, especially if you're in the latest branch of FSD (Full Self-Driving), 12.5 or 6.3 or something, your car is able to drive itself in literally almost every scenario outside of very, very specific places like parking decks. For example, even then, I've seen some Teslas navigate through that.
Now, I don't want this to be an ad for Tesla, but what's really remarkable here is that Tesla has figured out how to make a car drive itself in literally almost every situation—and more likely than not in every situation very, very soon—with just eight cameras and a computer on board. The parts of these are probably no more than $2,000 altogether, which is going to allow Tesla to make millions of these units per year, especially as the decade goes along. All of these are going to be allowed to operate in the United States basically anywhere because of this new federal regulation that's coming.
Now, to do some math to figure out how big of a deal this is from, say, a stock perspective or evaluation perspective, we can look at how many miles are driven in the United States per year. Total mileage—just people getting around, delivering stuff, whatever—we can make some very safe assumptions to come up with some pretty huge numbers, to be completely honest. And again, this is not financial or investment advice; I just want to walk through this with you because this piece of news is going to change the landscape of the United States transportation systems.
According to Perplexity, which I've cross-checked, Perplexity is basically a really fancy ChatGPT. There are about 3.3 trillion miles in the United States that are driven per year. Most of these are going to be non-commercial—basically, you and I getting from point A to point B. We're going to use this 3.3 trillion miles per year as our baseline to figure out how big of an impact this is going to be for a company like Tesla.
So, if you assume of those 3.3 trillion miles, about 10% are captured by Tesla at some point in the future, let's say by 2030 or so. This turns out to be about 330 billion miles. 330 billion miles might sound like a lot; 10% of the market might sound like a lot. But think about what I just went through: Tesla is going to be the only company that can manufacture these self-driving cars at scale—in the millions of units per year. Nobody else can offer this, and 10% of miles driven per year is equivalent to about 10 million cars in the fleet in the United States, driving about 30,000 miles per year or about 5 billion cars driving about 66,000 miles per year.
So, it's not an insane number of cars; you just need a certain level of cars to operate autonomously to reach that level of market share, let's say. And of course, this is going to be super realistic because the average taxi driver today, the Uber driver, drives about 60,000 to 120,000 miles per year. Professional Uber drivers, professional taxi drivers, are already doing the maximum of what we're using for this example, and sometimes they drive way more.
Now, from Tesla's perspective, they've already manufactured 7 million Teslas globally, and about 25% of those are in the United States. Somewhere between 1.7 million to 2 million Teslas are in the United States today. If you think about Tesla's plans to come out with a cheaper vehicle in the next 6 months to a year, with their plans to increase manufacturing in places like Texas, China, and so on, and to put in new manufacturing plants in places like Mexico and probably some other places we haven't heard of yet, it's very easy to see how Tesla can reach 10 million cars in the United States by the year 2030—at least, at least 10 million cars.
So, keeping that 330 billion miles per year in mind and thinking about how easy it’s going to be for Tesla—relatively speaking, way, way easier than anyone else—we can start to do some math to figure out how much money Tesla can actually make from this.
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We'll start by setting a price of how much Tesla will charge to offer a self-driving car to the public. I'm going to use $125 just to be conservative and also to take into account how much cheaper it's going to be to operate a self-driving car than it is to say, an Uber or a taxi. Sixty percent of the dollars you pay for an Uber or a taxi goes to pay for the driver's time. When you yank that out, you can see that you can be a lot cheaper. So, $125 is kind of this crazy number because it's way cheaper than a comparable Uber, and an Uber today is about $1.85 per mile, before tips.
This allows Tesla to make a ton of money on this, because they've yanked the most expensive part of the ride. If you make a very reasonable assumption and say, “Hey, Tesla's going to make about 20% profit on that $125 they are charging the consumer,” that's about 25 cents per mile that goes into Tesla's pockets every time they offer a self-driving car on their platform.
Now it just becomes a very simple math exercise. We take the 10% of that total market of 3.3 trillion miles, which was the 330 billion miles that Tesla is going to be able to take. That number, that net number per year that Tesla is going to make in profit just from autonomous cars is $82 billion in profit per year. And this is just in the United States, and that is just taking 10% of the total miles driven in the United States.
If you use a conservative number of 30 price/earnings multiple—for those that are not familiar, this is a fancy way of trying to come up with a valuation figure to figure out how much the company is worth by taking how much they make and multiplying it to figure out how much the company should be worth. So, at 30 price/earnings, that gives us $2.5 trillion of valuation based on, again, those assumptions. Tesla's about a trillion dollars today, so this means a 2.5x on just that business alone, on just the United States at 10% market share.
Let’s say Tesla is able to go to 20% of the market; that’s a $5 trillion valuation. And the other thing to keep in mind, too, is as autonomous vehicles become cheaper and cheaper versus drivable vehicles, the total market expands dramatically.
How many people choose not to go out because gas is too expensive? Or they can't afford a car, or they can't really make a justification that says, well, if I pay this much to go there, then I'm not going to have as much time—you know, as much fun, so I'm just going to stay home? Think about all the other things that open up by having the ability to get from point A to point B without having to drive.
How many more people are going to be willing to take trips if they don't have to be stressed out driving, right? That's why this is such a huge deal. Having a federal framework for self-driving vehicles puts Tesla aside and will enable so many companies to come in and disrupt transportation so that people can get from point A to point B much, much cheaper, much, much easier.
Self-driving cars are going to be everywhere; you just tap a button and it shows up. It's going to be insane. It's going to be one of the biggest deflationary forces we'll experience in the coming 5 years when the cost of transportation goes down significantly. Moving around becomes way cheaper—people, products, or whatever—and so a lot more of that will happen.
Think about what happens to the economy. Think about what happens to society when the friction of going from one point to another becomes way, way less, way, way cheaper. Economies will transform; communities that have been beaten down will transform, because people can now afford to go to work.
Fifty percent of the country is paycheck to paycheck, and they can't even afford to go to work. So what happens there once you make it cheaper for people to go to work? Economies boom, right? So now you have a forcing function for beaten-down places to adopt this technology even faster.
With federal regulations coming to fruition, this will exist literally everywhere in the United States. This is such a huge deal; it's such a huge deal. Tesla specifically is set to really, really, really benefit from this, as long as they can manufacture and as long as they can continue that trend of improving self-driving technology, which they clearly are on.
So if I'm a betting man—which I'm not, okay? But if I'm a betting man, I think that by 2030, Tesla is going to be worth a lot more than they are today. But again, this is not financial or investment advice; this is just something that I see in plain sight.
Hopefully, this is helpful. Thank you so much for watching, and we'll see you in the next one. Take it easy, everybody. Bye-bye!