Tesla Inc (NASDAQ: TSLA) analysts Tom Narayan and Brad Erickson highlight the company's potential with FSD and robotaxis and also share thoughts on whether the electric vehicle giant could work with Uber Technologies (NYSE: UBER) and Lyft Inc (NASDAQ: LYFT) instead of competing against them.
Tesla FSD, Autonomous Opportunity: RBC hosted investors at Tesla's Giga Texas facility and now has "increasing confidence" in the company's autonomous vehicle goals, along with more confidence in seeing the company's competitive advantages in manufacturing over other automotive companies.
Narayan and Erickson, who have an Outperform rating on Tesla, raised the price target from $249 to $313.
"While we think much of the stock's post-election share price move is not rooted in fundamentals, we like the risk/reward of our implied upside value/share versus our downside," the analysts said.
The analysts said the automotive sector remains challenging and Tesla stock could see near-term pressure, but has a chance for long-term growth thanks to FSD innovation. The analysts assign a value of $102 per share for Tesla's FSD business, cars represent $36 per share and robotaxis represent $136 per share.
The analysts said Donald Trump's elimination of the electric vehicle credit could be a net negative for Tesla, which is expected to gain market share as a result.
Tesla's newest version of FSD includes a "hands-off" allowance for roads in the United States, which could put Tesla ahead of other competitors, the analysts said.
"Almost every OEM L2+ product in the market currently has limitations. Most do not take exits, make turns, and in some cases do automatic lane changes."
The analysts expect FSD pricing to come down to $50 per month for consumers, but see the future opportunity to increase the price to $100 per month with new features.
Tesla could earn $83 billion in revenue from FSD and could see $22 billion in licensing revenue for the software by 2035, the analysts said.
The analysts see FSD's value rising from $61 per share to $102 per share, representing 33% of the overall price target on Tesla and 64% of the price target increase.
RBC's tour of Giga Texas also led to a price increase on Tesla cars, thanks to the company's vertical integration and cost structure advantages over the competition.
Robotaxi Opportunity: The analysts said Tesla is committed to owning all pieces of the robotaxi ecosystem, which includes the vehicle, software and app. This could give the company a competitive cost advantage over other autonomous vehicles, the analysts added.
Narayan and Erickson think Tesla could represent a 20% share of robotaxis in the U.S., 6% in Europe, and 8% in China.
While Tesla robotaxis could be bad news for ride-hail companies like Uber and Lyft, the analysts see an opportunity for the market size to grow and for potential partnerships.
"Ride volumes would increase dramatically, helped by lower pricing coming from AV ridesharing," the analysts said. "Currently, only 1% of miles driven in the U.S. for example, come from ridesharing."
Tesla has around two million vehicles on the road in the US and Uber has 70 million to 80 million active users, the analysts noted.
"As such, partnering with Uber makes sense to expand its customer base."
Erickson said he has "rising conviction" that Tesla could be more open to working with Uber and Lyft at some point.
"We believe the successful AV networks of the future will involve deeply integrated partnerships composed of OEMs, suppliers, software-enablers and ride-hailing networks all playing their critical roles in delivering a safe, reliable and, importantly, economically sustainable service."
Erickson said Uber and Lyft are likely to benefit from a growing total addressable market expansion for ride-hail and robotaxis with or without a partnership from Tesla.
"We believe Tesla is more mindful of maintaining some level of economic rationality than we might have thought previously and would view them more as a partnership candidate over time."
Without partnerships with Lyft and Uber, Tesla could have to spend tens of billions of dollars to reach "adequate marketplace density and liquidity."
RBC has an Outperform rating on Lyft with a $24 price target. RBC has an Outperform rating on Uber with an $82 price target.
TSLA, UBER, LYFT Price Action: Tesla stock is up 3% to $320.41 on Friday versus a 52-week trading range of $138.80 to $358.64. Tesla stock is up 29% year-to-date.
Uber stock is up 2% to $73.00 on Friday versus a 52-week trading range of $53.15 to $87.00. Uber stock is up 25% year-to-date.
Lyft stock is up 1% to $18.02 on Friday versus a 52-week trading range of $8.92 to $20.82. Lyft stock is up 31% year-to-date.