Tesla stock jumped on Tuesday as oil prices surged and a report that Alphabet is refocusing its auto efforts surfaced. Analysts started to weigh in on the rumor that the Google parent is shifting away from fully developing its autonomous car and toward a service involving self-driving taxis and licensing the technology behind those taxis to automakers. Most seem to agree that Alphabet’s move is good for Tesla—if the rumor is correct, of course.
Alphabet admitting defeat in autonomous cars?
According to the rumor, Alphabet is shifting its self-driving vehicle division from its Google X moonshot division to its own entity within the company. The new segment will reportedly be called Waymo, and it’s arguably less ambitious and more focused. Rather than selling cars, Waymo will reportedly be offering a sort of robo-taxi service.
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Tesla is already ahead of Alphabet in the area of autonomous driving, at least according to Morgan Stanley analyst Adam Jonas, who has an Equal-weight rating and $242 per share price target on Tesla stock. He feels that one key component of developing fully-autonomous vehicles is collecting miles, which Tesla has managed to do quite well regardless of how few of its vehicles are on the road. Jonas said in a research note dated Dec. 14 that the automaker’s fleet drives about 5 million miles a day, and about one-third of the miles are being driven on Autopilot. Alphabet’s cars, however, travel only about 3,000 days, he estimates.
What Alphabet lacks, but Tesla holds
Jonas expects the pace of daily miles traveled to double in a little over a year, placing Tesla “in a unique position to pursue state of the art algorithmic driving and machine learning in personal transport.” These elements are essential to creating an autonomous vehicle that can drive without getting into accidents. The Morgan Stanley analyst notes that consumers, regulators and investors will react positively to any data which indicates that Tesla’s autonomous cars are safer than cars driven by humans, which is what Chief Executive Elon Musk has been claiming for quite some time. Any such safety data is sure to be a catalyst for Tesla stock.
Jonas also noted that he has been concerned that the automaker has been up against tough competition for top talent in the area of autonomous driving tech. However, Alphabet’s repositioning could mean that suddenly there will be a lot of software and hardware engineers with expertise in this area that are either out of a job or want to jump ship because of the new direction.
The analyst also believes that the formation of Waymo could mean that Alphabet either has less ambition in the area of self-driving cars or will take a longer time to develop fully-autonomous vehicles in-house. Once again, this could be good for Tesla’s ability to attract top talent.
Is vertical integration the future for automakers?
Jonas also reports that in his conversations with automakers, he has found that many don’t want to partner with Alphabet and would rather develop their own solutions. Tesla is the same, as it clearly wants to control most, if not all, of the manufacturing process. The EV maker has been heading down the path of vertical integration for some time, perhaps following in the footsteps of Chinese electric bus maker BYD.
Forbes contributor Howard Yu considered why Tesla has managed success in autonomous driving while Google, a much larger company with a years-long head start, has failed to commercialize its efforts yet. He noted that researchers discovered years ago that it’s pretty common for the creators of technology to fail at commercializing it. He also recalled the days when Ford was vertically integrated in its early years and explained how difficult it is for automakers to change just the smallest thing on their parts because they have to call a supplier on the other side of the world and then wade through a mountain of red tape.
Tesla, however, is bringing more and more of its operations in-house. The Gigafactory will give it more control over its batteries, in both quantity and quality, although it continues to work with Panasonic. According to Yu, Tesla wanted to race ahead, faster than the pace at which it could move if weighed down by a plethora of suppliers, each with its own impact on how quickly Tesla can advance.
Yu argues against partnerships in the area of technology, particularly automotive technology, and touts the virtues of integration or bringing technology development in-house. He believes that Google’s failure to commercialize its autonomous driving technology was a direct result of its lack of a manufacturing background and sales network.
Shares of Tesla stock rose by as much as 2.04% to $202.20 during regular trading hours on Wednesday.