Cities are 'the biggest hurdle' for Tesla's robotaxi: Analyst

RBC Capital Markets Global Autos Analyst Tom Narayan has lowered his price target for Tesla (TSLA) from $293 to $227, citing concerns about the company's anticipated robotaxi project. Narayan joins the Morning Brief to share his perspective on the electric vehicle giant's outlook.

Narayan's price target revision was influenced by two key factors. First, he anticipates lower pricing in the rideshare industry by the time robotaxi launches. Second, he projects higher revenue share percentages for rideshare platforms like Uber (UBER) and Lyft (LYFT), potentially diminishing robotaxi's valuation. Despite these concerns, Narayan maintains that the robotaxi project will be the "biggest contributor of value for Tesla."

However, Narayan emphasizes that "the biggest hurdle" for this technology lies not in its development but in infrastructure adaptation. "The tech isn't that really far away, it's not the tech. It's really the cities need to reengineer themselves," Narayan explains to Yahoo Finance.

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This post was written by Angel Smith

Video transcript

After eight days of wins for the tech sector, one tech name that is under pressure this morning is Tesla.

That stock is moving to the downside here after down a little over one and a quarter percent after our next guest lowered his price target on the name based on some new calculations for the company's robot program.

Joining us now to discuss, we have Tom uh Narayan, he's R BC capital markets, lead equity analyst for global Autos.

Tom.

Thanks so much for being here with us to discuss your decision here.

Talk to me about the single biggest driver of this price target change for you when it comes to Tesla.

Yeah, there are really two things.

Uh The first thing is we looked at what pricing would be in a world of robotaxis.

And we realized with working with our internet team who covers the ride, hailing companies, Uber and Lyft, et cetera, that pricing will actually be lower, it will come down as this will be a regulated industry.

So we lowered our pricing.

The second thing is we increase the value that we think will go to those companies, the app companies, the Ubers the Lyft um as a higher revenue share percentage than what I was assuming previously.

So it's really those two things that lowered the Tesla specific robo taxi valuation.

But we still love Robotaxis and we still think it's going to be the biggest contributor for value for Tesla by when Tom.

Well, my evaluation I think you guys remember is based off 2040 then I discounted back.

But I do think on August 8th, we will get an announcement that we will start seeing uh some actually near term deployments of robotaxis, but it'll be in cities like we've seen probably like from GM Cruise and Waymo and cities like San Francisco, Austin Phoenix.

Uh it is a very small scale.

You're not going to get this at mass scale for years, if not decades out.

And on that exact point, Tom, when do you anticipate the Tesla robo taxi revenue kind of being a contributing factor to Tesla's overall profit margins?

Oh, not for a while.

Uh It could be 5, 10 years away.

But it's one of these things where when it happens, it will happen in a big way, right?

The automotive or transportation industry is a $6 trillion industry today.

Uh autonomy robotaxis autonomous vehicles has the chance to make this much bigger 10 billion potentially, right?

Takes share from planes and drains and gives uh mobility to the elderly Children, people with disabilities.

And so it's one of these things that will be a tectonic shift in how we all live.

It's just, it's gonna take a long while before it contributes financially uh to any of these companies.

Tom, when you think about city infrastructure, does there need to be a, a significant change in city infrastructure in order to facilitate safe robo taxi rollouts?

Absolutely.

Yes.

Yes.

Yes.

That's probably the biggest hurdle.

Um, you know, we spoke to the CEO of, uh ST anti last year at our conference and he said, like, the tech isn't really that far away.

It's not the tech, it's, it's really the cities need to reengineer themselves.

Right.

I mean, just think about, I don't know if you've been to Paris, the Champs Elysees.

It's, there's not a lot of uh computers able to make decisions.

It's humans making aggressive decisions on how to drive.

And so cities have to completely change themselves reorganize.

It's already happening in China.

Some western cities in London, go check out Oxford Street.

There's only certain vehicles could drive there.

Manhattan is talking about stuff so it will happen.

But yeah, cities are going to have to change dramatically to allow for these things to happen, but they will