Samantha Lee/Business Insider Tesla CEO Elon Musk and Amazon CEO Jeff Bezos.
- Morgan Stanley auto analyst Adam Jonas told Business Insider that major tech companies like Alphabet, Apple, and Amazon will have an advantage over Tesla when or if they decide to operate self-driving taxi services.
- Each can use profits to offer new services at lower prices than their competitors to gain market share and drive out rivals.
- Tesla, on the other hand, has produced widening losses in the past two years and has over $3 billion in debt due through the end of 2021.
- If Tesla wants to run a successful autonomous ride-hailing service, the service will have to be profitable at some point, Jonas said.
In the coming years, Tesla plans to launch an autonomous mobility service, called the Tesla Network, that will combine ride-hailing and car-sharing.
While CEO Elon Musk has touted the Tesla Network as an opportunity for Tesla owners to make money from their vehicles when they aren't using them, Morgan Stanley auto analyst Adam Jonas told Business Insider that peer-to-peer car sharing will comprise a small percentage of the network. Instead, Jonas said he thinks Tesla will start an autonomous ride-hailing service with a fleet of company-owned vehicles.
Big tech companies can offer new services at a loss
In a 2017 study, Intel and Strategy Analytics projected that the global market for autonomous driving technology will be worth $7 trillion in 2050. That's why auto and tech companies are spending billions to develop self-driving systems.
Jonas said major tech companies like Alphabet (which owns the autonomous driving company Waymo), Apple (which is developing self-driving technology), and Amazon (which has formed a team to explore possible uses of self-driving tech) will have a big advantage over Tesla when or if they launch self-driving taxi services because they could run such an operation at a loss.
Alphabet and Apple have posted billions of dollars in annual profits for over a decade and Amazon has done so in each of the past two years. Each can use those profits to offer new services at lower prices than their competitors to gain market share and drive out rivals.
Tesla, on the other hand, has produced widening losses in the past two years and has over $3 billion in debt due through the end of 2021. While its energy business and vehicle charging stations give the company diverse revenue streams, Tesla doesn't have the breadth of products and services that Alphabet, Apple, and Amazon do. If Tesla wants to operate a successful autonomous ride-hailing service, the service will eventually have to be profitable, Jonas said.
"If Tesla's going to run an autonomous taxi service long-term, then at some point they need to make money on that journey," Jonas said.
Tesla did not respond to a request for comment.
Profitability is a priority for Tesla
Profitability is becoming a priority for Tesla. In its 15-year history, the company has had just two profitable quarters and zero profitable years. But Tesla has said that it expected to become consistently profitable starting in the third quarter of this year (it has not yet disclosed its third-quarter financial performance).
Jonas said he expects the Tesla Network to launch in the latter part of 2019 on a very limited basis. (Musk has said the service will likely be ready by the end of next year, pending regulatory approval.) Waymo has said its autonomous ride-hailing service will debut in Phoenix before the end of this year, and while Apple and Amazon are exploring self-driving technology, neither has disclosed firm plans for an autonomous taxi service. But, Jonas said, the exact year any of the three would start offering an autonomous ride-hailing service doesn't matter, as they'll be better positioned than Tesla to run new services at a loss for the foreseeable future.
That advantage is a major reason Jonas said his outlook on Tesla has changed. He said he once thought the further into the future you looked, the better Tesla's prospects appeared. Now, he said, the opposite may be true.
Read more about automotive technology:
- Tesla is making a promise about its cars that it won't be able to keep: Gene Munster
- Tesla is wrong about one key part of its self-driving car strategy, experts say
- Car companies are pouring billions into self-driving tech they may never use, experts say
- Waymo could be worth as much $175 billion - here's a brief history of the Google Car project
- I rode in a self-driving shuttle in Times Square - and it showed what the early years of fully-autonomous vehicles might look like
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