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Tesla Will Use Model 3 Lease Returns For Its Own Autonomous Ride-Hailing Network

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Autonomous Vehicles

Published on April 12th, 2019 |

by Kyle Field

Tesla Will Use Model 3 Lease Returns For Its Own Autonomous Ride-Hailing Network

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April 12th, 2019 by Kyle Field

Tesla broke the news on its blog today that it would be using lease returns from its new Tesla Model 3 lease program in “the Tesla ride-hailing network.” The blog post is the second confirmation that Tesla will actually own and operate its own fleet of fully autonomous ride-hailing vehicles, with the first note along these lines coming years ago on a quarterly Tesla conference call.

“Beginning today, customers in the U.S. will be able to lease Model 3 for a small down payment and competitive monthly payments. Customers can choose any Model 3 variant and select an annual mileage option of 10,000, 12,000, or 15,000 miles.

“Please note, customers who choose leasing over owning will not have the option to purchase their car at the end of the lease, because with full autonomy coming in the future via an over-the-air software update, we plan to use those vehicles in the Tesla ride-hailing network. Customers can visit tesla.com/3 now to lease a Model 3.”

Previous to today’s announcement, Tesla had spoken of its fully autonomous “Tesla Network” a few times but primarily did so in the context of allowing owners to add their vehicles to the fully autonomous network when their vehicles were not in use. From Tesla’s Master Plan, Part Deux:

“You will also be able to add your car to the Tesla shared fleet just by tapping a button on the Tesla phone app and have it generate income for you while you’re at work or on vacation, significantly offsetting and at times potentially exceeding the monthly loan or lease cost.”

The news today emphasizes that the reach of the Tesla Network will include a fleet of Tesla-owned and Tesla-operated vehicles running around town. The new business model will see Tesla running head first into a market dominated by Uber and Lyft, but without the overhead of a driver. Conversely, Tesla will be running a hybrid business model that will see Tesla-owned vehicles operating side by side with privately owned Teslas for customers’ business. The shift in tactics makes a lot of sense and could see Tesla becoming the first in the ride-hailing industry to actually turn a profit.

Waymo has been pushing forward in this direction and already has a pilot up and running in the greater Phoenix area, but is saddled with the full capital cost of having to develop its own autonomous vehicle solution. Its solution is being bolted onto Chrysler Pacificas that only add to the capital requirement. Tesla, on the other hand, will use its own vehicles, ones that have already had their most expensive depreciation paid for by lessees.

The Tesla Network is not a sure win for Tesla, but does signal that the company continues to ramp up its investment in its in-vehicle software solutions. Its Autopilot and Full Self Driving software packages form the foundation for a new company-owned ride-hailing network as well as a customer-owned ride-hailing network. As the vehicle manufacturer, it appears that gives Tesla a leg up on anyone else currently doing business in the space. That is, if Tesla can deliver on its promise of a “feature complete” Full Self Driving solution by the end of 2019 and a fully baked, “set it and forget it” Full Self Driving solution by the end of 2020.

About the Author

Kyle Field I'm a tech geek passionately in search of actionable ways to reduce the negative impact my life has on the planet, save money and reduce stress. Live intentionally, make conscious decisions, love more, act responsibly, play. The more you know, the less you need. TSLA investor.

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Lyft shares should only be worth $59 according to valuation guru

Mario Tama | Getty Images
Confetti falls as Lyft CEO Logan Green (C) rings the Nasdaq opening bell celebrating the company's initial public offering (IPO) on March 29, 2019 in Los Angeles, California.

When Lyft went public on March 29, it was valued at more than $20 billion, with shares priced at $72. Lyft shares have since declined and closed below the IPO price at $70.23 today, in part because of investors' worries over its nearly $1 billion in losses last year, and its high valuation.

The ride-hailing company should be trading closer to $59 per share, and valued closer to $15 billion, according to Aswath Damodaran, who teaches corporate finance and valuation at the Stern School of Business at New York University. That would imply about a 16% drop from today.

On CNBC's Fast Money, Damodaran explained there's fundamental problem with Lyft's business model that may have helped the company grow fast, but makes it hard for the company to make money:

“The driver is a free agent. The customer is a free agent. There is absolutely no stickiness in the business, and they know it. That's the basic problem I have with the ride-sharing business not just Lyft. What they have succeeded at is changing the way we use car service. I have Uber and Lyft on my phone and I never take a cab. What they haven't figured out is how to make me stay with them. I'm completely disloyal here. Same thing with drivers.”

At least Lyft is focused, and not committed to expensive, risky side projects like Uber, Damodaran noted.

Uber recently spent $3.1 billion to acquire Careem, a ride hailing business that serves passengers in the Middle East. Uber also spent money to set up a research and development division, Uber ATG, that is working on everything from self-driving car technology to air taxis.

By contrast, Lyft is primarily focused on maintaining and growing its marketshare in North America.

Damodaran said: “I'd take Lyft over Uber because Uber wants to be all things to all people. You'd think they'd learn from their mistakes. They tried in China and had to back out of China. I think being less ambitious in this business, until you figured out a business model, is better.”

Lyft's IPO kicked off a so-called “unicorn stampede,” or string of public market debuts expected this year from tech companies that have raised copious amounts of venture capital and are privately valued over $1 billion. Among those expected to go public later this year are Uber, which was privately valued at $72 billion last year; Pinterest, which is aiming to go public at a valuation of up to $9 billion; and Slack privately valued at $6.7 billion.

They should learn from Lyft's experience, and from predecessors like Snap, the business school professor suggested.

“You don't want to go up against Facebook and Google. Create a niche and be in it,” Damodaran said. “The mistake that Snap made, which Pinterest should not, is they thought they could be bigger than Facebook.”

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