Tesla's margins will be 'a sideshow' compared to robotaxi

Tesla (TSLA) has reported mixed second-quarter earnings, missing adjusted earnings expectations but beating revenue forecasts. Brett Winton, Ark Investment Management (ARKK) chief futurist joins Asking for a Trend to discuss the implications of this earnings report.

Despite Tesla's earnings miss, Winton argues that "the real story" lies in the company's potential to deliver on its robotaxi ambitions. He suggests that if Tesla succeeds in this venture, factors like gross margins and delivery numbers would become "a sideshow" in comparison.

Winton calls robotaxis "an inevitability," driven by rapid advancements in artificial intelligence. He cites Tesla's massive data center and its current fleet of vehicles as key advantages, leading him to believe "they're gonna be able to deliver autonomous driving".

Regarding the financial impact, Winton anticipates a robotaxi pilot could emerge between late 2024 and early 2025. He predicts this would transform Tesla's business model from "one-time sales to recurring revenue," describing it as "a business transformation the likes of which the world has never seen".

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This post was written by Angel Smith

Video Transcript

Welcome to ask me for a trend.

Tesla's second quarter results have arrived with the EV giant missing on earnings for more on Tesla earnings.

We're joined now by Brett Whitton or invest chief Futurist Brett.

It is good to see you.

So uh Tesla reports Q two adjusted eps uh does Miss Brett uh stocks lower here but you know, we're awful low.

It's down about 2%.

Uh Brett, give me, give me your reaction to the print.

I mean, the, the real story in Tesla is its ability to leverage artificial intelligence to deliver a Robo taxi service.

And if and when they do that, that will transform the financial prospects of the business.

So I know that um kind of autos analysts like to focus on kind of gross margin and deliveries, but that's largely a sideshow relative to how the business is going to transform Brett.

I have to admit, I'm a little surprised to hear you say if and when, because I think you guys have seemed pretty confident in the past that that in fact, Tesla would come out with this robo taxi will come out with um some more sort of a I capability.

So has that confidence wavered at all.

No, not at all.

I mean, you know, I probably have a compliance person watching on TV, making sure I don't say anything too definitive.

Um But I think that Robo Taxi is effectively an inevitability, an inevitability given the pace at which artificial intelligence is accelerating.

If you look at the data center that Tesla has installed right now, the number of computers they have deployed, that data center could train um meta's large language model that it just released in six weeks.

So they have one of the largest data center clusters in the world uh using their extreme data advantage with all of the vehicles they have on the road today, we think they're going to be able to deliver, you know, autonomous driving where you really can't have a driver sitting in the backseat and riding rather than driving.

And right now I use FSD every day.

It's like a magical marvelous product that, that really makes me sane on the freeways of Los Angeles.

And so I'd encourage everybody to try it.

It's amazing and we think it's going to transform the financial prospects of the company in the future.

And when would that be Brett?

I mean, do you try to ballpark that when you think robo taxes would actually have a, a real meaningful financial impact for the business?

Yes.

So we think um the most likely commercialization pilot it is, you know, probably either late this year or early next year.

Uh and then it'll ramp from there.

And so, um if you look at kind of the our publication on, on what we think is going to be the development pathway of the business, the the probability is mostly in this year and next year when they begin to commercialize, and it will flow through the financials and in a really transformative way, they go from selling vehicles one time and getting really poor margin on vehicle sales to getting software revenue off of vehicles um annually, that is in excess of what they're getting off vehicle sales today.

So you go from one time sales to recurring revenue at software type margins and with less capital intensity.

So it's really a business transformation, the likes of which the world has never seen.