With the help of fully automated driving, Tesla's stock price is about to reach a new high?

Tesla, Inc. (Tesla, Inc.) Facing unprecedented commercial challenges.

As the electric vehicle (EV) industry matures, competition becomes more intense, customer demand declines, and alternatives gradually become popular.

Tesla is responding to the challenge by ramping up the electric vehicle price war launched since the end of 2022.

At the same time, the company appears to be accelerating the development of a fully automated driving (FSD) platform and the launch of the Robotaxi service.

We remain optimistic about Tesla Corp. shares, reaffirming a target price of $492 per share and a buy rating.

However, Tesla's response was very appropriate. With the low-cost structure of its electric vehicle business, the company has stepped up the electric vehicle price war launched since the end of 2022. Tesla lowered the price of the 2024 Model Y to below the level of an internal combustion engine (ICE) vehicle and launched a new 2024 Model 3 for a monthly rental price of $299.

Following the release of earnings for the first quarter of 2024, Tesla generally lowered the price of electric vehicles in the US, China, and Europe. Additionally, the company expects to launch the Model 2, an economical electric car with a price of $25,000 and a range of 300 miles within a few years.

Additionally, we believe Tesla is releasing the Fully Automated Driving (FSD) version 12 update very fast, and the launch of a fully automated, low-cost self-driving Tesla is just around the corner. Additionally, as the company expects to solve the problem of fully automated driving in the short to medium term, it will launch its Robotaxi electric vehicle in August. We believe that given the type of Tesla fully automated driving technology, the company is expected to dominate the $8 trillion autonomous taxi market in the U.S., as predicted by experts.

Overall, Tesla is transforming into a supplier of low-cost autonomous electric vehicles. Additionally, we assessed that its strategy is to generate significant revenue through a highly profitable fully autonomous driving platform. Considering that Tesla's fully autonomous driving system is controlled by an end-to-end neural network, once fully put into use, Tesla equipped with the final fully automated driving system can drive itself around the world.

Therefore, we expect smart Tesla cars to be in high demand once Tesla is equipped with the final fully automated driving system. Ultimately, as tens of millions of Teslas hit the road, fully automated driving systems will become the company's main source of profit.

The above is the state of Tesla's car business. Tesla isn't just a car company, though. The company's business also includes a profitable and growing battery storage platform, and Optimus, a humanoid robot currently under development.

These two components are expected to provide Tesla with strong long-term benefits. Overall, although Tesla's story has changed, the company has more potential than last year.

As a result, we maintain a target price of $492 per share, which includes 50% revenue growth, 10% profit margin, 18% operating cash flow rate, 2% annual capital expenditure, 7% average cost of capital, and 3% long-term growth over 10 years. Reiterate the buy rating.

Although most electric vehicles (EVs) sold in the first quarter of 2024 were Tesla (Tesla), about 387,000 units, and BYD (BYD) and Volkswagen (Volkswagen) accounted for about 300,000 units and 136,000 units, respectively, Tesla (TSLA) Model 3 and Model Y deliveries fell 10% compared to the same period last year, production fell 2%, and revenue fell 13%. Additionally, TSLA's market share in the EV industry declined from 62% in the first quarter of 2023 to 51% in the first quarter of 2024.

The company attributed this decline to seasonal factors, macroeconomic pressures, Red Sea (Red Sea) attacks, and a failure to keep up with growing demand for the updated Model 3 and Cybertruck.

However, we believe that the main reason for the slowdown in TSLA's automotive business in the first quarter of 2024 was the decline in demand for battery electric vehicles (BeVs) in the US, China, and Europe. Regarding customer demand, electric vehicle sales in the US, China, and Europe increased by 2.6%, 14.7%, and 1.6%, respectively, in the first quarter, which is far below the level of growth in similar periods in previous years. In the US, electric vehicle sales fell 15.2% on a quarterly basis.

In Europe, the low growth in electric vehicle sales is likely to be a long-term phenomenon, as we think those who tend to buy electric cars have already bought them. Regarding the electric vehicle market in China, we expect that the rapid sales growth of electric vehicles in the past few years will gradually be digested in the next few quarters, and electric vehicle deliveries may rebound strongly at that time.

In the US, we believe that the easy goals for two-car families have been achieved; their electric cars are used to drive in the city and internal combustion engine cars (ICE) are used for long trips. The market has turned to middle-income bike owners, whether in urban or suburban areas, who focus on the price of electric vehicles, average range, and battery charging infrastructure outside the city.

As a result, in the US, the high price of most mid-range electric vehicles and the limited density of battery charging stations outside cities are limiting factors in electric vehicle sales.

As a result, in the first quarter of 2024, hybrid electric vehicles (HEVs) and plug-in hybrid electric vehicles (PHEVs) in the US increased 46% and 70%, respectively, using gasoline and batteries to provide higher fuel efficiency and lower emissions. Also in China, sales growth of hybrid and plug-in hybrid electric vehicles surpassed battery electric vehicles in the first quarter of 2024.

Overall, electric vehicle alternatives are becoming increasingly attractive to electric vehicle customers.

Both hybrid electric vehicles and plug-in hybrid electric vehicles are equipped with internal combustion engines. However, plug-in hybrid electric vehicles require a battery to be plugged in to charge; they have two fuel ports, one for gasoline and one for electricity; they can provide 20 to 50 miles of range on a single charge. A hybrid electric vehicle is entirely fueled by gasoline, and its battery is charged by energy generated when the vehicle is braked. Because power is distributed between gasoline and electricity, hybrids are known as electric vehicles. However, the only fuel used is gasoline.

Toyota (Toyota, TM) introduced the electric hybrid, the Prius (Prius) almost 25 years ago. Benefiting from the cooling of customer interest in battery electric vehicles, the company sold approximately 3.4 million hybrid electric vehicles in fiscal year 2023, including a large number of Lexus luxury brand hybrid electric vehicles. Additionally, thanks to increased customer demand, Ford (Ford, F)'s hybrid electric vehicle sales increased 36% in the first quarter of 2024 compared to the first quarter of 2023. Additionally, in the past twelve months, the company has successfully sold 400,000 hybrid electric vehicles.

Overall, despite the recent popularity of hybrid electric vehicles and plug-in hybrid electric vehicles, we believe customer demand for battery electric vehicles will surge as cheaper models with reasonable range are introduced, and battery charging infrastructure supported by government incentives and policies is sufficient across the US.

Regarding increased competition impeding Tesla sales, it is worth noting that although the challengers are increasing electric vehicle production at an unprecedented rate and significantly increasing the profit margin of their electric vehicle business through improvements in scale, commodity price, and sales volume, their electric vehicle production and delivery volume are still very small compared to Tesla. However, a number of new competitor electric vehicle models are expected to be launched in 2024.

GM chose to focus on luxury electric vehicles, often large, long-range vehicles with advanced features and functionality.

This strategy is based on the company's assumption that luxury electric vehicles are likely to show greater customer acceptance and resilience than the broader electric vehicle market. As a result, GM plans to launch several luxury electric vehicles in 2024, including the long-range Chevrolet Equinox in the second quarter of 2024, and the Cadillac OPTIQ and Cadillac Escalade in the second half of 2024.

Also, in the same period, the company plans to launch its Chevrolet's more affordable trim lines: Equinox EV, Blazer EV, and Silverado EV. Notably, GM's long-range luxury pickup trucks, GMC Sierra EV Denali and Chevrolet Silverado EV RST, are highly anticipated models in this segment.

Overall, according to the company's forecasts, GM expects to manufacture only 200,000 to 300,000 electric vehicles in 2024, despite an increase in electric vehicle production.

Stellantis (STLA) said it plans to launch 18 new and upgraded battery electric vehicles in 2024, including its economy electric car, Citroen ec3, and several C-class battery electric vehicles, such as the high-performance long-range Peugeot E3008, which can run up to 700 miles on a single charge. Additionally, the company is preparing to launch a top electric version of the RAM REV in the electric truck segment.

Cumulatively, Strantis plans to launch 25 new models in 2024, 18 of which will include electric vehicle versions. Overall, Strantis seemed uncertain about the customer's power choices, so it prepared to launch enough new and upgraded electric and internal combustion engine vehicles. Notably, the company has an important position in the commercial electric vehicle segment, accounting for 33% of the market in this category.

Although Ford's electric vehicle market share increased by 3.4% to 7.5% in the first quarter of 2024, Ford is scaling back its electric vehicle plans due to a decline in global battery electric vehicle sales growth in the first quarter of 2024 and profit pressure from the segment's ongoing price war. Given that the 17% drop in the price of the Mustang Mach-E electric vehicle reflects a 141% increase in sales, Ford said it plans to launch smaller, economical electric vehicles, usually aimed at urban markets.

Although Toyota previously announced plans to develop significant business in the battery electric vehicle segment, battery electric vehicles accounted for only about 1% of the company's global sales in fiscal year 2023 and delivered 117K battery electric vehicles, far below the target of 202K. In line with its focus on typical hybrid electric vehicles rather than battery electric vehicles, Toyota expects to deliver 171K battery electric vehicles in fiscal year 2024.

TSLA's response to falling customer demand, increasing popularity of alternatives, and increased competition is an ongoing price war.

Tesla lowered prices in the US, China, and Europe after the release of the first quarter of 2024 earnings. In the US, the new Model 3 with a range of 341 miles can now be leased for $299/month (manufacturer's recommended retail price is $39K). Notably, the Model 3 consumes 25.3 kWh of electricity per 100 miles, while the Mustang Mach-E is 32.7 kWh, the Model 3 is the most efficient dual-motor electric vehicle at this price. Additionally, Tesla cut the price of the 2024 Model Y SUV (310-mile range) to $29K.

Similar battery electric vehicles (BEVs) include the 307-mile BMW i4 for $52K; the 149-mile Fiat 500e for $34K; the 275-mile Volkswagen ID.4 for $39K; and the 310-mile Mustang Mach-E for $43K.

In terms of plug-in hybrid electric vehicles (PHEVs), the Kia Sportage has an electric range of 34 miles, a fuel consumption of 35 miles per gallon, and costs $40K; the Volvo Luxury PHEV has an electric range of 40 miles, a fuel consumption of 31 miles per gallon, and costs $52K.

In terms of hybrid electric vehicles, the Toyota Camry's fuel consumption is 52 miles per gallon, and the price is $29K; the fuel consumption of the Hyundai Tucson is 38 miles per gallon and the price is $33K; the fuel consumption of the Lexus luxury hybrid is 39 miles per gallon, and the manufacturer's recommended retail price is $43K. Internal combustion engine vehicle (ICE) models that cost between $20K and $25K include Honda Civic, Toyota Corolla, Kia Forte, Hyundai Asante, and Nissan Sentra.

In contrast, the 2024 Tesla Model Y's recommended retail price is $29K, which is only $22K after the $7,500 IRA tax credit, which is on par with lower-cost internal combustion locomotives and significantly lower than the price of plug-in hybrid and hybrid electric vehicles.

Since Tesla's innovations in powertrains, drive units, battery production, thermal systems, interior components, and low-voltage controllers have brought about a low-cost structure, Tesla believes the company can maintain positive cash flow even if the electric vehicle price war is further intensified.

Additionally, Tesla plans to start producing an economical Model 2 in late 2024 or early 2025. The compact electric car is expected to have a battery life of 300 miles, and the manufacturer's recommended retail price is $25K. The company said production will begin at existing manufacturing facilities in Fremont, Austin, Berlin and Shanghai.

Additionally, we expect additional production of the Model 2 to begin at the Mexican plant once it is put into use.

Considering that the Mexican plant may be integrating a boxless manufacturing method, which can reduce the footprint by 40%, and the cost per unit may be 50% lower than the Model 3/Y due to innovative subsystems, the profit margin of Model 2 produced at this plant may be higher than vehicles manufactured at other plants. Overall, although the manufacturer's recommended retail price for Model 2 is relatively low, profit margins associated with the model are unlikely to be affected.

Additionally, Tesla is speeding up production of its FSD platform. Since the software status was raised from beta to supervised at the end of March, updates to FSD version 12 are being released rapidly, controlling the transformation of applications into end-to-end neural networks rather than computer programs. FSD is Tesla's newest Autopilot version, included with every Tesla, and supports automatic parking, lane changes, and traffic navigation.

In the US, FSD version 12.3.6 is being distributed. In China, after getting approval from the authorities and reaching an agreement with Baidu, Tesla will get a high-resolution road map of the country, and Tesla is expected to launch the latest FSD version soon.

Considering Tesla halved the FSD subscription price to $99/month in the US and Canada and cut the purchase price of the app from the previous $12,000 to $8,000, the FSD mileage for neural network training is likely to increase rapidly. The additional FSD mileage increase will come from the rapidly expanding global Tesla fleet, which is expected to increase from 6 million vehicles at the end of March to 7.5 million by the end of 2024. We assess that this significant increase in FSD mileage for neural network training will accelerate the development of FSD software.

Tesla's FSD platform's monetization opportunities aren't limited to Tesla. Considering that the software can be easily integrated into OEM vehicles by deploying only FSD platform-specific cameras and inference computers, we believe vehicle manufacturers seeking to turn their products into smart cars may adopt Tesla's FSD software on a large scale.

Additionally, Tesla said it plans to operate an autonomous taxi network once its FSD software is fully functional. The Robotaxi service will deploy Tesla's own Robotaxi models and allow Tesla owners to add their self-driving Tesla to the service when their vehicles are not in use. Since Tesla's FSD app is based on neural network training rather than map technology, Tesla with the software installed can drive anywhere in the world with only minor adjustments to local driving habits.

As a result, Tesla's Robotaxi network's addressable marketplace is global. In the US, data shows that the autonomous taxi industry could generate trillions of dollars in revenue by 2030. Considering that the range of autonomous taxi services currently operating domestically is limited because they rely on expensive map technology, and Tesla will be able to drive on its own anywhere in the world, Tesla seems to have an advantageous position in the Robotaxi market.

Overall, while Tesla's other current and potential businesses appear attractive in terms of profit potential, it would be a mistake to assert that the best period for Tesla's automotive business has passed.

As control of TSLA's FSD platform shifts to an end-to-end neural network, it seems more likely than ever that a fully functional FSD application will become a reality. When this reality becomes a reality, TSLA's vision of monetizing the FSD platform to drive most of its earnings will be realized. The company's battery storage business, potential Robotaxi services, and Optimus humanoid robots will provide additional revenue support.

However, given that TSLA's long-term profit strategy relies on its FSD system, investors with a fairly long investment period who are skeptical about the company's ability to resolve the FSD should not buy TSLA shares. To all others, TSLA appears to be a low-risk, high-growth asset that may generate asymmetric returns over the long term.

All in all, at current levels, Tesla's stock is a great deal.

Editor's note: Investing is risky, and you need to be careful when entering the market. I wish everyone good luck with the stock market.