A large part of Tesla's (TSLA) growth history is based on the idea of the so-called Tesla Network, an independent vehicle service that CEO Elon Musk has claimed will compete with as Uber (UBER) and Lyft (LYFT) in the riding sector. Thus, on March 6, the update of the Tesla website comes as a shock to those investors who had projected large revenues from the Tesla network in the near future. The updated website has actually removed all reference to the Tesla network.
It looks like Tesla is quietly backing away from the big Tesla Network claims, which can lead to serious consequences for the company's growth story, as well as the inflated share price.
A sudden return
The removal of any reference to the Tesla network is both sudden and surprising. Tesla did nothing to telegraph the change. In fact, in the Q3 2018 profit call in October, Musk still woke up lyrically about the Tesla network's potential and market potential:
"We definitely see the future as part of a common electric autonomy, so you could be riding or sharing the car anyway, you know the type of a long-term model that is probably a combination of Uber, Lyft and Airbnb. There will be Tesla dedicated cars for riding and any customer will be able to share their car at rest, just like sharing your house So it's a combination of the two models, I think is quite obvious where things are in the long run, and the advantage that Tesla will have is that we will have millions of cars on the field with full autonomy capacity and no one else will have it So I think it will stop putting us at the strongest competitive position in the long run. "
Musk offered additional information about his vision for the Tesla network throughout nkomsterna. While his language was largely speculative, he went into great detail about how the business would work. Specifically, he foresaw a system where Tesla owners could link their vehicles to the service so that they could generate passive income. At the same time, the company would maintain a fleet of vehicles designed to serve Tesla Network customers.
But when Tesla updated much of the language describing his self-propelled technology last week, many of the boldest security and functionality claims were either watered down or completely removed. Also gone was this reference to the Tesla network:
"Also note that it is good to use a self-driving Tesla for car sharing and skiing for friends and family, but it only makes it revenue that Tesla is allowed Network whose details will released next year. "
It may seem like an innocent change, but it is far from the truth. The fact is that it can have very serious consequences for how the company is viewed – and valued – by the market.
Massiva Maas Dreams
Musk's deep vision for self-driving vehicles and Tesla's place in the middle of an autonomous network, has been a core component of the company's growth story, as well as its treatment as a technical company, rather than just a niche car. Musk's enthusiasm has proved to be contagious to many investors and analysts.
Among asset managers, ArkInvest may have been most excited about Tesla's growing space-mobility-as-a-service leadership ("MaaS"). The US $ 4,000 – ultra-fast-track securities firm – which resulted in extensive media coverage last year – is largely based on the forecast for the large growth of Tesla's MaaS business:
"Our $ 4,000 price assumes that Tesla is evolving from a hardware manufacturer with 19% gross margins to a company that generates most of its profits from Mobility-as-a-Service (MaaS), a company we believe will have 80% gross margins.In the $ 4000 scenario, our assumptions are conservative: We only take in profits from cars and some autonomous taxi networks, not from trucks, drones, energy conservation or the MaaS opportunity in China. "
ArkInvest projects that Tesla can achieve this transition within the next five years. Musk himself has entered this story with gusto. Earlier this month, he argued that Tesla's complete self-propelled technology would be "complete" and fully functional by the end of 2019.
ArkInvest is far from alone in this enthusiasm. Morgan Stanley (MS) Adam Jonas has been a constant encouragement to Tesla's non-profit future autonomous vehicle services, as he has labeled "Tesla Mobility." As we discussed in a research notation last October, SEK 95 of Jonas's 291 price target was attributed to Tesla Mobility. It is quite a third of the company's total valuation in the analyst's mind.
Unfortunately, these high price targets are based on ambitious dreams rather than concrete reality.
Colliding with reality
Tesla's decision to scrub reference to Tesla Network is very significant. The company has been playing its self-propelled technology for years, and Musk has repeatedly guided his immediate release. But in reality, Tesla is nowhere near the lead in autonomous driving. As we discussed in a new research paper, Musk's big promises have largely been a little more than fantasies. Waymo (GOOG) (NASDAQ: GOOGL), General Motors (GM) and Ford (F) are generally considered to have significant management over other autonomous vehicle programs. Tesla has meanwhile been ranked dead last in Navigant's latest industry survey.
Even worse for Tesla is the growing number of experts who call their approach to autonomy as fundamentally flawed due to lack of LIDAR. As we discussed earlier, regulations will almost certainly bind the use of LIDAR in the event of legalization of autonomous vehicles. Tesla, who has shifted that technology, may well find her technology completely obsolete before it even has a viable product.
As for the timeline, Tesla has again proved to be very misleading. Top experts and managers in space generally acknowledge that full autonomy is many years away. For example, Waymo's CEO believes that it will take a decade at least to reach the level of sophistication and safety of self-driving cars to hit public roads.
Musk and Tesla have failed to present a compelling case for why their approach will lead to such a radically faster expansion. It does not seem to be anything but ambitious talk, not backed by concrete evidence. Musk has remembered such ploys in the past, but it will eventually blow back on Tesla.
Investors Eye View
Tesla's vajda valuation is based on a number of very tough premises. The idea that infinite demand for their vehicles will drive massive sales development has fallen flat this quarter, in light of evidence that demand has fallen off a rock. Tesla's solar business, another element that is supposed to make it "more than a car company", has shrunk for a while in sight.
Now it's the autonomous vehicle program's turn to disappoint. Even the once reliable Adam Jonas has become bearish in Tesla Mobily's immediate prospects. In his latest research report, published after Tesla's review of the site, Jonas hit his prizes at $ 260, with Tesla Mobility's value dropping to $ 55. Jonas perceived that the technology takes much longer than originally expected and can take many years – maybe more than a decade – to complete.
Almost every major contributor to Tesla's growth story faces significant headwinds at the moment. Going back on self-driving and the Tesla network represents another collision with the reality that no amount of futuristic forecasts can overcome.
As the reality of the Tesla network's limitations becomes clear, investors should expect the share price to suffer.  Enlightenment: I am / we are short TSLA. I wrote this article myself and express my own views. I do not get compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.