Tesla's (TSLA) Success Depends on Autonomous Driving Tech, Observers Say

For Tesla, Inc. (TSLA) stockholders, the past week has been a pretty wild roller coaster ride. After racking up gains of more than 60% since September and reaching a new price record, the stock took a deep dive on Monday, Nov. 15, and fell by more than 16%. The crash was in response to news that Tesla CEO Elon Musk was selling approximately 10% of his holdings in the company. Usually, the sale of a large amount of stock by a company founder is harbinger of bad news about its prospects.

But Tesla is no ordinary company. The electric car maker has weathered many troughs in its share price in the past, and this time doesn't seem to be an exception. The stock has recovered by roughly 11% since its Monday nadir. At the end of trading on Wednesday, Nov. 17, Tesla shares closed at $1,089, up 3.25% from the day's start. 

The Key to Tesla’s Future Success? Autonomy

With much of the attention focused on Musk's tweets announcing the sale of his holdings, traders and investors in Tesla might be wondering whether the stock's fundamentals—those relating to its technology and sales—have become less important.

According to Colin Rusch, senior analyst at Oppenheimer & Co., Tesla stock might be taking a "healthy" breather after its phenomenal run. "We've seen major moves in this stock over and over again, and had to retrace and consolidate. And we think that's largely what's going on here, and they're using the tweets and the selling as an excuse around that," he told Yahoo Finance.

Future success for Tesla is predicated on its ability to reach Level Four or Level Five autonomy (complete autonomy) before its peers, Rusch told interviewers. Tesla’s Autopilot feature, which allows some self-driving capability along with driver engagement, is currently classified as Level 2 autonomy under the levels of automation defined by the Society of Automotive Engineers. 

Established car manufacturers are still catching up with Tesla. While Ford Motor Company (F) has postponed its plans to introduce autonomous vehicle service until next year, General Motors Company (GM) said that it will introduce Ultra Cruise—a Level 2 autonomous feature—in its vehicles in 2023.  

Noted Tesla bull Cathie Wood—who has set an ambitious price target of $3,000 for Tesla stock in 2025—is also betting on the electric car maker's self-driving features to give it a competitive boost over rivals. "If Tesla is the first to be successful in autonomous in the United States, we're beginning to believe that not only will Tesla take that biggest share of the electric vehicle market, we believe that it could take 20% to 25% share of the total auto market," she told Barrons. 

Wood has estimated a 50% probability for Tesla to beat competition in autonomous driving. In the past, analysts have forecast significant profits for Tesla from its Full Self Driving (FSD) feature. Gene Munster, Loup Ventures managing partner, estimated that booked operating profit from FSD will multiply from $600 million in 2021 to $102 billion in 2032, provided 80% of its customers subscriber to the feature. 

Wood said that established car makers will find it "awfully difficult" to manage their operations in the next five to 10 years as the world transitions to electric vehicles. "And we would bet that they will not be alive in their current state. They may be in combination with someone else, or they may go bankrupt," she said.