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In June, ARK Invest suggested that Tesla (NASDAQ:TSLA) The stock price could hit $2,600 by 2029. Much of its thesis was based on the company's robotaxi business.
With less than a month to go until Tesla’s (rescheduled) robotaxi unveiling, it seems like a good time to revisit ARK’s thesis. Should investors buy the stock today at $230?
Robotaxis… finally?
Tesla was supposed to unveil its robotaxi in August, but that didn't happen, but the new date is now less than a month away.
It may be hard to overstate the importance of this aspect for investors. ARK's view is that 90% of Tesla's profits will come from its robotaxi business by 2029; without this, things look much less positive.
Without a robotaxi service, Cathie Wood's company believes the stock will be worth $350 within five years. And that's based on a human-driven ride-hailing service, which Tesla hasn't shown much interest in.
ARK estimates the probability of Tesla not having a significant robotaxi business by 2029 to be less than 1 in 10,000, but I think investors should carefully consider the implications of this.
Regulation
The biggest problem, in my opinion, is regulation. It is the main obstacle to the launch of a fleet of robotaxis that (i) could seriously delay or even block the entire operation and (ii) is not under Tesla's control.
I think it's difficult to estimate the company's chances of getting regulatory approval for its autonomous vehicles in 2029. This is especially true for someone outside the company.
In that situation, it's best to look for a margin of safety, but ARK's $2,600 price target implies a 99.9% probability of success for Tesla, and that's without taking into account any other risks.
I think this is a bold move, to say the least. And while other autonomous vehicle companies have made progress, this is not automatically a good sign for Tesla.
Competence
AlphabetWaymo's robotaxi business has already had some success with regulators. As a result, it already has 700 autonomous vehicles on the road.
However, Waymo's approval doesn't mean Tesla will adopt something similar in the future. While Waymo uses lidar, Tesla's robotaxis rely on cameras, ultrasound and radar to navigate.
Elon Musk says Tesla's system is easier to scale than a lidar installation and would even work on a different Earth. But that doesn't do much to get past regulators, who are primarily interested in this planet.
Ultimately, Tesla will have to prove its system is as safe as Waymo’s (or even safer) for regulators to approve it, and that might not be easy.
The big question
I agree with a lot of things about ARK's prospects for Tesla. The company's prospects look much brighter if it manages to successfully launch a robotaxi network in the next five years than if it can't.
However, I think the issue of regulatory approval is much more complicated than ARK analysts believe, and that makes me fundamentally more cautious.
I am not convinced that the correct probability of Tesla launching its robotaxi network in the next five years is greater than 99.99%. That is why my own price target for the stock is much lower.
