The Wall Street Journal published an article today bringing up the question in the title. Now that Tesla has launched a kind of robotaxi trial in Austin, Texas, with a small number of cars and it’s clearly not perfect, one could ask if Waymo is being massively undervalued compared to Tesla. “Waymo was last valued at just $45 billion, while autonomous technology drives most of Tesla’s $1 trillion value,” the WSJ writes.
It’s an interesting point, and there are multiple possibilities here. Let’s roll through some of them, and feel free to chime in with any more down in the comments if you have them.
Tesla’s robotaxi capability is sub-optimal and cannot scale widely right now or for years into the future. In the meantime, Waymo keeps scaling up and Tesla sales are just stable or drooping. In this scenario, Tesla’s market cap certainly seems far too high, but does it also mean Waymo’s valuation is too low? For that to be true, Waymo still needs to show that it can scale up massively and make a profit — or make a lot of profit. That’s certainly a possibility if Waymo can exponentially scale, but we don’t have confirmation of that yet.
Tesla’s robotaxi capability improves in coming months, rapidly expands to more cities and regions, and hangs in head to head with an also fast-growing Waymo. In such a case, the question is still how much they can both scale and how much they can make a profit on such service. Even if they both scale up a ton, that doesn’t mean the service will be profitable. Sure, you can question whether a $1 trillion market cap makes sense for Tesla, but you can also question whether a $45 billion valuation for Waymo makes sense — even in this scenario. But, yes, being very positive, you can also include in this scenario massive profits as the companies scale up and dominate the taxi/robotaxi/ride-hailing market.
Tesla’s robotaxi capability is deemed adequate in coming months, scales up rapidly to other markets, and comes to dominate the taxi/robotaxi/ride-hailing market via significantly lower costs and easy expansion. I don’t see this happening, since I don’t see the software as being good enough or improving quickly enough. (I also think a good portion of the potential market won’t consider riding in a Tesla robotaxi due to Elon Musk’s reputation.) However, this is a clear possibility and is what most Tesla fans/shareholders seem to be expecting — or at least hoping for. This would also, theoretically, lead to more demand for Tesla vehicles/sales.
In one of these scenarios, Waymo’s valuation could, in theory, be far too low. However, in multiple scenarios, it could still be inflated. The more prominent possibility is that Tesla’s market cap is far too high. There’s one scenario there where it might make sense, assuming both massive scaling up and massive profits from the robotaxi operations. But widespread expectation of that — as is evident in the company’s stock price/market cap — seems more to do with Tesla being a meme stock and people just believing that Elon Musk and Tesla will succeed because they succeeded in some previous efforts, most notably scaling up production and demand for electric cars. As it stands, though, note that Tesla’s stock price is more or less the same as it was before the robotaxi trial launched. At the moment, as I’m writing this, it is down 0.16% from 5 days ago.
Getting back to the question in the headline, just because Tesla’s robotaxi launch wasn’t perfect and is tiny in scale doesn’t mean Waymo deserves a valuation above $45 billion. Waymo needs to have — and show — a path to massive profits. It can’t just be better than Tesla. As far as I’m aware, Waymo hasn’t put out a real presentation on that, and no public information makes it evident. Though, presumably, they have such a plan mapped out internally and have presented it to investors. We’ll see if the company can execute, but before it’s talking about this publicly, I think we can presume there’s still a lot of risk and a ways to go.
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