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Tesla’s 90% Promise in 2016 Will Work

Tesla Motors Inc (NASDAQ:TSLA) may be putting out nearly self-driving cars sooner than we think.

Elon Musk once again turned heads this week, telling London’s Financial Times that Tesla should be able to provide a driverless experience on 90% of the miles driven within three years.

Automakers have been talking up the long-term potential of cars that can shift into auto-pilot, but no one has been bold enough to point to a timeline as early as 2016, as Musk is now implying. Nissan Motor Co., Ltd. (ADR) (OTCMKTS:NSANY) pointed to 2020 last month as its goal for putting consumers into truly driverless vehicles. What makes Tesla so smart that it can shave four years off that timeline?

Well, the key here is the 90% of mileage that Musk is alluding to here. Drivers won’t be able to completely zone out, nor will chauffeurs become completely obsolete. The pure driverless cars will take some time, but Tesla feels that it can cover most of the tedious driving for those that want to let technology take the wheel.

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Tesla may have competition in the arena of cars that drive themselves some of the time. There are already cars that parallel park themselves. General Motors Company (NYSE:GMis already testing a “Super Cruise” technology that would essentially kick into autopilot on open highways.

We can’t assume that Tesla’s going to run away with the entire driving-free market. However, being vocal early could help to ensure that the electric car superstar becomes the poster child of driverless cars when the subject is brought up in the coming years.

Before one argues that a $70,000 car that drives itself 90% of the way is never going to be affordable enough to road-weary drivers, let’s analyze that three-year time frame again.

Tesla filed an application to trademark the “Model E” name last month. It’s widely believed that this will be the name for the next generation of Tesla after the current Model S sedan and next year’s Model X crossover. Musk has discussed having a more economically priced car on the market by 2017, which just so happens to be around the time that this driverless technology becomes available. So it’s possible this technology would only be in the Model S and Model X, but not the more accessibly priced Model E.

These are the wildcards that keep Tesla’s market cap at a bubbly $20 billion, burning short-sellers along the way. From today’s perspective, that’s an outrageous valuation for a company that in reality is only selling as many cars — hundreds a week — as the other leading plug-in car models.

Yes, Tesla’s surprisingly profitable, and its cars cost a lot more than the competition, but that’s not enough. As it builds out its network of charging stations and expands its regional galleries and showrooms, we may get to thousands of cars sold a week. But that in and of itself also isn’t enough to justify the $20 billion price of admission for today’s investors.

But then we tack on Musk’s goal of having mostly driverless cars on the road in 2016, and the more attractively priced Model E a year later. After that, the upside starts to look tremendous, given all of the brand building that Tesla has been doing in the meantime. We could go from hundreds of cars sold a week today to potentially tens of thousands a week if Tesla continues to be the brand that drivers crave both here and now abroad. If Tesla’s aim is on the mark, that $20 billion market cap isn’t so outrageous after all.

The article Tesla’s 90% Promise in 2016 Will Work originally appeared on

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends General Motors and Tesla Motors. The Motley Fool owns shares of Tesla Motors. 

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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