Uber and Tesla, two colossal entities in the automotive realm, stand at the forefront of their respective niches. While Tesla holds the illustrious title of the globe’s premier electric vehicle (EV) manufacturer with its mega-cap status, Uber reigns over the international ride-hailing domain.
Both juggernauts are funneling substantial investments into leveraging the potential advantages of being pioneers in the autonomous vehicle (AV) sector, rendering them prime investment prospects at the moment. This analysis sets out to discern which autonomous vehicle stock presents a superior investment opportunity.
The Lucrative Robotaxi Market Predicted by Cathie Wood
Tesla’s much-anticipated foray into the autonomous vehicle arena via the introduction of the Robotaxi is slated to unfold at an upcoming event on Oct. 10. Elon Musk, Tesla’s CEO, has articulated ambitious plans to establish a fleet of self-driving vehicles that target a myriad of markets such as logistics, ride-hailing, car rentals, and food delivery. This strategic move underscores Musk’s assertion on the recent earnings call that vehicle autonomy is a pivotal component influencing the stock’s valuation.
A prominent figure in the investment sphere, Cathie Wood, the CEO of Ark Invest, envisions a colossal $10 trillion opportunity awaiting Tesla within the Robotaxi domain. Despite the potential for these figures to be off the mark, companies that manage to secure a robust foothold in this rapidly expanding market stand poised to deliver exceptional returns to steadfast long-term investors.
However, Tesla is set to encounter fierce competition from the likes of Alphabet and General Motors, both of which have forged partnerships with Uber for separate AV ventures.
Just last week, Alphabet’s autonomous driving unit, Waymo, proudly announced a doubling of paid rides to 100,000 per week in the past quarter while unveiling plans to inject $5 billion into Waymo in the immediate future to propel its growth trajectory.
Of significance, Uber has collaborated with Waymo to delve into autonomous ride-hailing and food delivery services in Phoenix. Furthermore, it recently unveiled a global partnership with BYD, a key rival to Tesla, expanding into autonomous capabilities.
Evaluating Tesla’s Prospects for Revival
Despite its standing as the world’s most valuable automaker, boasting a market cap of $667 billion, Tesla has trailed broader market trends over the last three years. Escalating inflation and interest rates have exerted pressure on the company, compelling it to slash vehicle prices in a bid to stimulate consumer demand.
In 2021, Tesla’s free cash flow surged to a record high of $6.45 billion. However, it experienced a free cash outflow of $744 million in the preceding 12 months. The gross margins for Q2 of 2024 plummeted to a five-year low of 14.6%, falling below consensus estimates of 16.3%.
Presently, Tesla’s stock lingers 49.5% below its all-time peak and commands a hefty price at 91.8x forward earnings, a steep valuation considering its dwindling profit margins.
From a consensus view involving 33 analysts tracking TSLA, eight advocate a “strong buy,” one suggests a “moderate buy,” 17 recommend “hold,” and seven advise “strong sell,” culminating in an overarching “hold” consensus rating. The average 12-month target price of $198.29 stands approximately 3.7% below the prevailing trading price.
Assessing the Investment Appeal of Uber’s Stock
A stalwart with a robust presence in 10,000 cities across 70 nations, Uber completed Q2 of 2024 with $40 billion in gross bookings, marking a 19% upsurge compared to the prior year. The tally of trips in Q2 surged by 21%, escalating to 2.8 billion, while revenue scaled up by 16% to $10.7 billion, trumping estimates by over $100 million. Although freight revenue stagnated, the mobility and delivery segments recorded double-digit growth.
The count of monthly active consumers on Uber catapulted by 14% to reach 156 million, propelling a $1 billion upsurge in ad sales during Q2.
Backed by $6.3 billion in cash reserves, $1 billion in quarterly net income, and $1.7 billion in free cash flow, Uber stands on a solid financial foundation, leveraging economies of scale. The company’s steady upward trajectory in free cash flow empowers it to invest in cutting-edge technologies, including self-driving capabilities and artificial intelligence (AI). Furthermore, Uber expanded its foothold in the food delivery sector and unveiled a strategic alliance with Instacart.
Market analysts anticipate Uber to ramp up adjusted earnings from $0.81 per share in 2023 to $2.22 per share in 2025. Given these growth predictions, Uber’s stock appears reasonably valued at 32.7x forward earnings.
Among the 41 analysts scrutinizing UBER stock, 35 tout a “strong buy,” three suggest a “moderate buy,” and three advocate “hold,” translating to an average bullish stance of “strong buy.” The mean 12-month target price assigned to UBER stock stands at $85.97, signaling a near 20% ascent from the present trading value.
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