Can Self-Driving Cars Save Tesla?

Oddly, investors are asking can self driving cars save Tesla Motors (NASDAQ: TSLA).

Elon Musk is betting Tesla’s future on a piece of autonomous driving hardware he calls Autopilot 3.0. Tesla places Autopilot 3.0 inside a vehicle’s engine control unit (ECU).

However, President Donald J. Trump’s (R-New York) tariffs threaten Autopilot 3.0, TechCrunch claims. To explain, Quanta Computer builds the Autopilot 3.0 chips in Shanghai. Tesla could have trouble getting the hardware into the United States because Trump is refusing to exempt Autopilot 3.0 from 25% tariffs.

Is Trump punishing Tesla because Musk dumped him?

Observers will wonder if Trump is punishing Tesla because CEO Musk cut ties with the President.

To explain, Musk was one of the few Silicon Valley heavyweights to cooperate with the Trump administration early in the President’s tenure. However, Musk backed off and left two advisory boards after Trump pulled out of the Paris Climate Accords. An “Elon Dump Trump” campaign organized by the president’s critics partially motivated Musk’s action.

Moreover, Musk has attacked Trump in interviews since abandoning the President. Since then Musk has been the subject of a Securities and Exchange Commission (SEC) investigation and court order and the tariff actions. 

Thus, Musk’s naïve political actions could be the real source of Tesla’s problems. Had Musk understood Trump’s nature and stayed away he might have spared his company some troubles.

Does Tesla Need Self Driving Cars?

Musk is betting that he can drive sales and profitability with a new chip that will give Tesla vehicles a full-self-driving (FSD) capability, TechCrunch reports.

Notably, Tesla plans to charge car buyers an additional $6,000 for FSD vehicles. Tesla needs the additional income because it reported a -$521.83 operating loss and a -$702.13 net loss for the quarter ending on 3 March 2019.

In addition, an FSD capacity could increase demand for Tesla vehicles from high profit fleet buyers. Fleet buyers include car-rental companies, tax companies, ride-hailing services like Uber (NASDAQ: UBER), and government motor pools.

Such large volume buyers could make the Tesla Model 3 and Model Y profitable. A rental car company might want an FSD vehicle that drives back to its garage after dropping off a customer, for instance.

Will a Self-Driving Semi Save Tesla?

Moreover, an FSD capacity could increase sales of the Tesla Semi and drive sales of a potential motorhome. Musk is marketing the Tesla Semi as an over the road heavy truck. A full-saving driving capacity could extend the Semi’s range and make it more appealing to customers like Walmart (NYSE: WMT).

Plus, an FSD Semi could help Tesla cash in on the alleged long-haul trucker shortage. The American Trucking Associations (ATA) estimates companies need 60,000 to 100,000 additional long-haul truckers to keep the big rigs rolling, NPR reports. Semis with an FSD capacity could address this problem by reducing the demand for truckers.

For instance, an FSD semi could drive for several hundred miles at night while the trucker slept in the rig. That could double the rig’s range. In addition, the semi could drive itself on the interstate between cities. Instead of taking the full trip drivers could take over the semi for the final leg of the journey.

Musk needs greater capabilities to appeal to hard-nosed trucking industry executives will want to know how the Tesla semi will make them more money. Full autonomy is the obvious capacity to sell Tesla to the trucking industry.

Are Autonomous Trucks a Political Issue?

However, autonomous trucks are already generating political controversy even though they only theoretical.

Insurgent presidential candidate Andrew Yang (D-New York) predicts self-driving trucks will lead to riots and civil unrest. In his book The War on Normal People, Yang warns that truckers will riot and protest if FSD takes their jobs.

Consequently, Trump could make a sly appeal to truckers and Yang backers with the Autopilot tariff action. However, Trump could postpone the inevitable by encouraging Tesla to build the FSD chips in the United States.

Thus, Trump could protect a few American jobs in the short run but threaten tens of thousands of trucking jobs in the long run. On the other hand, Yang predicts FSD will not start wiping out truckers jobs until 2025 or 2026. Notably, a second-Trump term could end in 2025; so the Donald will be back at the Trump Tower writing his memoirs when that crisis erupts.

Is Tesla the Most Overvalued stock in the Universe?

One thing has not changed, I still think Tesla Motors (NASDAQ: TSLA) is the most overvalued stock in the universe.

To explain, Tesla shares were trading at $230.06 on 9 July 2019. Meanwhile shares of Ford (NYSE: F); which is planning to market its own FSD vehicle in 2021, were trading at $10.14. To elaborate, TechCrunch speculates Ford could launch delivery and tax services using fully autonomous vehicles in Austin Texas in 2021.

Under these circumstances, people are stupid to pay $230.06 for Tesla because Ford is cheaper and makes money. For example, Ford had an operating income of $4.045 billion and a net income of $1.146 billion on 31 March 2019.

Moreover, Ford reported an operating cash flow of $3.544 billion, a financing cash flow of $1.873 billion, and a free cash flow of $1.911 billion on the same day. However Tesla reported an operating “cash flow” of -$639.61 million, a financing cash flow of -$653.02 million and a free cash flow of -$944.8 million.

Tesla is Burning Cash while Ford is Making Money

Thus Tesla is burning cash while Ford is making money. In fact, Ford recorded a gross profit of $4.045 billion on revenues of $40.342 billion at the end of March. Tesla reported revenues of $4.541.16 billion and a gross profit of $565.74 million on 31 March 2019.

Additionally, Ford has the money to perfect autonomous vehicles while Tesla may not. In fact, Ford had $20.848 billion in cash and equivalents and $16.882 billion short-term investments on March 31, 2019. Meanwhile, Tesla had $2.329.12 billion in cash and equivalents on the same day.

Therefore, Ford has $37.73 billion in cash to invest in FSD capabilities. Plus, Ford has the money to buy Tesla or Autopilot 3.0 from Musk if Tesla runs out of money and collapses. Thus, I think Ford and not Tesla is the American company most likely to dominate autonomous vehicles.

Ford is the Better Investment in Self-Driving Vehicles

Ford is also the better investment in self-driving vehicles because it is cheaper, makes money, and pays a dividend.

Ford paid a 15₵ quarterly dividend on 2 June 2019. However, Ford’s dividend growth is limited there were no payout increases last year. Yet, Ford shareholders still received a 5.93% dividend yield a 60₵ annualized payout and a 43.5% payout ratio on 9 July 2019, Dividend.com estimates.

If you want an entertaining drama about autonomous cars watch Tesla, Elon Musk and Donald J. Trump will provide it. If you want a value investment that could make money from FSD vehicles buy Ford. I think Ford is a value investment in autonomous vehicles.

In the final analysis, I do not think the tariff and chip drama will delay the adoption of FSD. Autonomous vehicles are coming whether or not we want them. It is time to accept that reality and invest accordingly.