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Rise of the RoboCar: Uber CEO Says He’d Buy 500k Self-Driving Cars From Tesla Motors Inc (NASDAQ:TSLA)

Tesla Motors Inc (TSLA)

Tesla Motors Inc (NASDAQ:TSLA) is set to put a self-driving car on the road this Summer, and the firm’s attempts to make cars run themselves are attracting a huge amount of attention. Uber is one of the firms with the most to gain from the introduction of the RoboCar, and the firm’s CEO has made a dangerous promise about his intentions once Elon Musk gets his self-driving car on the road.

Tesla Motors Inc Uber deal - Rise of the Robocar

Steve Jurvetson, a partner at Draper Fisher Jurvetson, said that he spoke to Uber CEO Travis Kalanick about the Tesla Motors RoboCar. He said that if Tesla can make cars autonomous by 2020 he’ll buy 500,000 of them. Elon Musk says that he expects to build 500,000 cars by that year, including the Model S sedan, the Model X SUV and the mid-range Model 3.

Elon Musk builds the impossible

Tesla Motors CEO Elon Musk has a vision for the future and that future is approaching fast.  What Musk has accomplished in just a few years is impressive to say the least. Before getting to Robocars let’s look at some of what Musk has accomplished since the sale of Paypal in 2002.

SpaceX was founded in 2002 and by 2012 the company was sending its Dragon spacecraft to the International Space Station. 10 years may seem like a long time, but keep in mind that SpaceX is a privately funded start-up building space ships. That’s impressive.
Tesla Motors, Inc was selling it’s first 100% electric vehicle, the Tesla Roadster in 2008 followed by the Model S in 2012.  Two more Tesla EVs are coming to market relatively soon, the Model X and the more affordable Model 3.  Even with much reported delays in production and delivery of the new models, Tesla Motors is the only automaker that seems to be delivering on it’s promise to make EVs available to the masses.
Elon Musk is making a habit of delivering what many would have believed impossible just a decade ago. That makes Mr. Kalanick’s comment a dangerous one. It seems, however, that he’s not making a bet against Elon, he’s just recognizing how useful a RoboCar would be to him if released in 2020.
That’s good for Uber, because those that bet against Mr. Musk usually lose. Just ask the thousands, if not millions, of traders who have been shorting Tesla Motors since the firm went public back in 2010.

Uber bears the cost of the RoboCar

If Uber could get rid of the drivers that form the basis of its business, it would expand its margins, change the nature of transport forever, and make its investors very, very wealthy.

In order to get there Uber has been putting millions into the technology. It might manage to save money if another firm gets there first, especially if that firm were to share its tech with the world.

Bill Gates, former CEO at Microsoft Corporation (NASDAQ:MSFT) told the Financial Times on Wednesday, June 24 that Uber may be ahead of the likes of Google and Apple in the race to the self-driving car.

Izabella Kaminska, who writes about self-driving tech for FT Alphaville, reported that Gates called the self-driving car “the Real Rubicon” in terms of the future of the economy. He added that Travis Kalanick has the biggest R&D budget in the self-driving world and, despite his late entry, he may get there.

Elon Musk and Tesla Motors are already very far ahead of Uber on that front, and the gap may widen if Mr. Musk is able to go ahead with his self-driving ideas. The question is whether Tesla Motors can beat Uber to the punch, and whether Mr. Kalanick will pony up if the firm has 500,000 self-driving cars on the road by 2020.

Self-driving at Tesla Motors

Tesla Motors Inc (NASDAQ:TSLA) will put some sort of self-driving car on the road this year. The update for the Model S, which will also likely appear in the release version of the Model X SUV, will allow a Tesla to stay inside a lane on a long drive and maintain its speed.

On private land the Model S will be able to park itself in the garage and drive out to meet you at your door when summoned. There’s a lot of legal ground to cover before Tesla Motors gets a real self-driving car onto the road, however.

Elon Musk is stressing that the Summer update is “simply meant as a driver-assistance feature.” The car won’t drive itself, because that would likely break the law. Musk thinks a full RoboCar will be ready in about 3 years, just in time for Mr. Kalanick to buy up every single Tesla on the road today.

Investing in the RoboCar at Uber

Assuming that Tesla Motors gets there, the average price of its self-driving cars will likely be north of $40,000. The Model 3 is going to sell for around $35,000, likely after grants and tax breaks, but the average mix will be drawn higher by the Model S and Model X.

Leaving $40,000 as a speculative midpoint, the Uber purchase would amount to around $20 billion if Mr. Kalanick follows through on his idea. In it latest round of funding Uber was valued at $50 billion by investors. If the firm keeps on its current growth path, that $20 billion may not be too much to reach for.

Uber doesn’t have that much in the way of cash and capital right now, but the firm has had no trouble getting capital for its own push into self-driving. If Tesla Motors offers a ready-made solution to Uber’s wage problem that may be money well-spent.

At the same time, Tesla Motors could do with that cash. The firm’s finances are in a tricky state right now. Elon Musk says that his company won’t make a profit until 2020, possibly with Uber’s help, while the firm is forced to take on more and more debt in order to get its cars made and sold.

Elon Musk fights the law

Tesla Motors now has a huge incentive to get the RoboCar on the road by 2020, but Mr. Musk will need to get the laws rewritten in order to make that happen. He’s had mixed results in trying to change state law on how he’s allowed to sell the Model S in recent years, but he may have more support as he tries to make cars drive themselves.

Taking the labor out of transport could result in huge savings for all sorts of firms right across the world, and it’s likely to get more support for that than from the traditional car-makers that may lobby to have RoboCar rights reined in.

Elon Musk thinks that the tech to make a car drive itself will be working at Tesla in around 3 years, leaving him two years to fight for the right of users to use it. Road law has already been softened in that direction in states like California, but it’s likely that Uber is looking for an absolute self-driving car before it’s going to buy any from Tesla Motors.

Meanwhile Uber’s own team is working on getting a Tesla Motors competitor onto the road. The self-driving Uber could kill a good chunk of the market for a Tesla Motors RoboCar.

The RoboCar, and a massive injection of cash from firms like Uber, may be the only thing that can secure a solid future for Tesla Motors. The race is now on, and only another miracle from Mr. Musk, in both the tech and the legal worlds, will be able to secure the massive order that Mr. Kalanick has promised.

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Aaron McLeish

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