Tesla CEO Elon Musk has stated repeatedly that Tesla’s will become appreciating assets. We breakdown the likelihood of those claims.
According to Musk, Tesla plans to bundle Full Self-Driving on all vehicles it sells in the future. As the cost of Full Self-Driving increases over time, this will lead to Tesla’s equipped with the capability “being worth $100k-$200” due to the increased utility of having a vehicle on Tesla’s forthcoming autonomous taxi network.
Once Tesla is capable of autonomous driving, Musk predicts that they won’t be able to build enough cars to keep up with the demand. His example assumes a Model 3 sold today will be worth ~ $75k in the future.
Musk has gone as far as to claim Tesla may stop producing cars at consumer-oriented prices and switch its business model to exclusively building robotaxis. Consumers will still be able to buy them, but the cost will be substantially higher.
Let’s assume Tesla does bundle Full Self-Driving into every car they sell. Tesla has been lowering the cost of their cars over time as they’ve been able to lower their manufacturing costs, so we cannot predict that the total cost will be more than it is today. Tesla will have an exclusivity period for at least a few years if they do manage to make Full Self-Driving feature-complete over the next year or two, which would put them years ahead of the competition. During that period, Musk is correct that Tesla will have a commodity. Though we expect that eventually Full Self-Driving will become a standard feature on all its cars, who’s to say Model 3 won’t still start at $35,000 regardless? Musk has said that a cheaper Tesla model will be possible in 2-3 years.
Tesla is expected to have one million robotaxis capable of autonomy (keep in mind, all Tesla’s sold since 2016 include the necessary cameras and sensors) on the road in 2020. Uber has three million drivers globally with 900,000 in the U.S., but a Tesla would be able to operate longer hours. So there may not necessarily be a shortage of vehicles operating on Tesla’s taxi network.
The only logical way for Full Self-Driving to appreciate a Tesla is if a) Tesla either seriously constrained the supply of its vehicles to generate enough demand among those who can benefit from Full Self-Driving and are willing to pay a premium for a Tesla that’s already on the road or b) Tesla increases the price so substantially (tens of thousands of dollars) that a Tesla already equipped with the feature becomes immensely valuable. Both of those scenarios are possible, but unlikely. Tesla won’t just stop selling vehicles, though for a period of time it may become more valuable for them to devote their manufacturing efforts to building robotaxis that they can deploy on the Tesla taxi network. Full Self-Driving is currently a $6,000 option with the price expected to gradually increase over time, so to appreciate a Model 3 ~ $40,000 as Musk expects is a leap. While Full Self-Driving functionality may be worth $50,000+ on its own in theory, there are already hundreds of thousands of Tesla’s on the road that can add it.
The Tesla Taxi Network is where owners will see inherent value, and has the potential to turn a Tesla from a liability into an asset. Owners that purchase Full Self-Driving Capability will be able to add their Tesla to a fleet of cars that can autonomously pick up and drop off passengers who are able to summon a self-driving Tesla (à la Uber) through the Tesla app. Tesla will collect a ~30% cut from each ride, with the rest of the fee becoming passive income for the owner. The potential of putting a Tesla on the network could exceed $30,000 annually, which over the course of the car’s lifetime could recoup the initial cost several times over and become lucrative for owners.
Thus, the short answer is no. It would take an extraordinary set of circumstances for Tesla to make its vehicles an appreciating asset. On the other hand, the Tesla Taxi Network could prove to be exceptionally valuable for Tesla owners.
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