After chronically overpaying for the X social media platform, Elon Musk is likely in no hurry to again entangle himself in a complex acquisition process. However, an uber-bullish Tesla analyst is now urging the world’s richest person to deploy the EV giant’s considerable resources toward acquiring Uber.
As we noted in a recent post, Tesla shares have been struggling lately, with the stock now down 8 percent over the past month. For comparison, the Nasdaq 100 index is up a little over 1 percent in the same timeframe. A lot of this recent weakness emanates from Elon Musk’s comments during Tesla’s Q2 2023 earnings call, where the EV giant’s CEO communicated his continuing willingness to sacrifice profit margins to drive volume growth, banking on the eventual solution to the FSD conundrum to drive much higher profits in the long run. This suggests that more price cuts might be in the offing. To analysts, this was a clear-cut clarion call for further price cuts in the weeks ahead, laying the groundwork for a substantial erosion in Tesla’s rapidly declining profit margin.
What’s more, with the adoption rate of the Autopilot’s Full Self-Driving (FSD) capability ranging between 10 percent and 19 percent, the likelihood of the FSD ever providing a holistic offset to Tesla’s aggressive price cuts remains quite remote.
Not sure why $TSLA just doesn’t buy $UBER to get into autonomous ride hailing, and get all the data from its platform of 137M consumers who take 25M trips PER DAY. @elonmusk @MartinViecha
— Gary Black (@garyblack00) August 2, 2023
Against this backdrop, the Future Fund’s Gary Black has now exhorted Elon Musk to simply buy Uber. The rationale here is quite simple: if autonomous driving is indeed the future, then Tesla would either need to build its own network of autonomous ride-hailing cars or build upon an existing framework. The former option would prove to be prohibitively expensive for Tesla, leaving the latter as the only feasible approach. Here, given Uber’s global leadership, it is only logical for Tesla to build either an exclusive partnership with the ride-hailing giant or acquire it outright. As an added bonus, Tesla would gain access to Uber’s 137 million customers, allowing the EV giant to train its bespoke FSD-focused neural network at a much faster rate by leveraging the 25 million trips that Uber’s customers make each day.
Of course, such a feat would not be a walk in the park. After all, Uber is currently valued at $95 billion, while Tesla only has $23 billion in cash, with a significant chunk earmarked for ongoing capacity expansion.
I’m sorry you feel that way. $TSLA wouldn’t use cash if it bought $UBER. It would use equity so would be highly accretive with TSLA at 54x 2024 P/E and UBER at 36x 2024 P/E. If TSLA goes into ride hailing, competing with UBER would be a huge cash drain for years.
— Gary Black (@garyblack00) August 3, 2023
However, Black believes that Tesla would be able to pull off an all-equity “accretive” deal, with the added bonus of not having to compete with Uber’s own autonomous fleet under the UberX division, which is already in partnership with Google’s Waymo.
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