Are Robotaxis Coming to a City Near You?

0:04Matt Frankel:Are robo-taxis coming to a city near you? This is Motley Fool Money.

0:20Matt Frankel:Welcome to Motley Fool Money with the Hidden Gems team. I'm Jon Quast, and I'm joined today by Fool contributors Matt Frankel, and filling in for us this week is Jason Hall. We're going to talk about Tesla. We're going to answer questions from our mailbag about selling stocks. But first, we want to hit this multi-billion dollar lead story, and that's that QXO is acquiring TopBuild for a reported$17 billion. QXO is primarily a roofing business. And what was so interesting to me is its market cap is only about$18 billion. So probably better to call this more of a merger than an acquisition. But this isn't even the first acquisition it's made this month.

1:06Matt Frankel:Earlier this month announcing it's acquiring Kodiak Building Partners for$2.25 billion. This is just wow. John, no, this is an acquisition. Let's make no bones about that whatsoever. For those that haven't followed the QXO story, I'm a shareholder here. The reason I'm a shareholder is I want to invest along with CEO Brad Jacobs. This is one of the greatest value creators for investors in his companies in history. He's founded something like eight different companies that reached a value of at least a billion dollars. A few of those, United Waste, which was acquired, and XPO Logistics and United Rentals, which are still public, we're massive, massive winners for shareholders.

1:53With QXO, we're expecting the Jacobs playbook to work again in a different industry. So the playbook is take an industry that has dozens to hundreds of players, acquire a bunch of them at reasonable prices, consolidate them together where it makes sense, and then apply a layer of technology to those businesses to drive efficiencies and process improvements, repeat that playbook and be very discipline and do it for many years. And a lot of people are going to make a lot of money.

2:23Matt Frankel:Well, I mean, it certainly made the top of the headlines that I was looking for this morning, and that's why it made it onto the show. And I get it. Acquisitions are always exciting. But Matt, there are just so many instances where a business pays too much to buy another company, and it winds up destroying long-term shareholder value. I don't know. Does this QXO deal for top build makes sense to you?

2:46Jon Quast:Jason mentioned Brad Jacobs has a great history of value-adding acquisitions, paying the right price, and adding value afterwards. The deal does make QXO the second-largest publicly traded buildings product developer in North America. This is QXO's largest deal by a mile. It's bigger than all of its previous acquisitions combined. We're really betting on the Brad Jacobs playbook to work here. But I do like this one for QXO. Top build, They have very solid margins. It's trading for a reasonable valuation considering its growth in recent results, even after the acquisition premium. I think there are going to be a lot of synergy opportunities between the companies.

3:23Jon Quast:Jason knows it better than me, but I think this looks like all the makings of an accretive acquisition right off the bat. Yeah, I think that's right. Top Build, I followed it for a while, and they're an excellent, excellent operator. Our good friend Lou Whiteman and I were in a tech scoop, and we've been chatting a little bit about this. He really stressed that. Lou is maybe the biggest Brad Jacobs fan of anybody at The Fool. He's followed him and invested with him for a long time. Finding maybe an even better operator than Jacobs is pretty special. The other thing, though, is that Top Build is in a niche, but pretty big industry, the installation distribution business.

4:03But they also have a big installation business as well. You take that and you combine it with XPO's access to capital. That's why this deal is happening, because there's a lot of money out there that wants to go along with Brad Jacobs. And that could be some secret sauce here, giving top build paired with Jacobs more firepower to expand into more markets, both organically and through other acquisitions. Matt's absolutely right. This is by far the biggest deal that Jacobs has made at QXO, But it's now a player in multiple parts of the building distribution industry. Before, its biggest business was roofing products.

4:40The Kodiak deal got it into lumber and building materials. Now it's in insulation. I expect we're going to see further expansion into the other segments of the construction and building products distribution industry. It's an$800 billion industry. Again, I'm a shareholder because Jacobs does this. He does this incredibly well and doesn't just build empires. He builds value for shareholders. And we're going to see a very fragmented industry get consolidated more. There's so much opportunity to do these kinds of deals. Everybody was expecting another roofing business because that's looked like that was where he was going to start.

5:13And I think this caught a lot of people off guard. And it's a reminder that the goal is just to take this fragmented industry and consolidate it in ways that make sense. Now you get to cross sell. You get to combine customers across these businesses. there's a lot of ways that Jacobs can create value here.

5:32Matt Frankel:Is this one of those businesses that does better in a hotter real estate market? Or is it just one of those tried and true? It doesn't really matter what the real estate market is doing. It's going to be a little bit like Matt, you'll love this. It's going to be a little bit like investment banks in a way that nothing's always working great. Parts of it do great when the economy and the market's going hot. Other parts, when there's a lot of struggle, you think about the roofing products business, For example, we have an aging housing stock in the U S there's a lot of deferred maintenance. There's opportunity there that insulation business, that's largely a bet on new home construction.

6:10That's the largest thing there. And their niche because of their, the, uh, doing the, um, installation of that. It's a dirty, ugly kind of insulate, you know, installation sort of business to do. So having that business is the kind of thing that home builders, they're building a community they want the whole community done. They're going to have one company that's going to come in and be the contractor and do all the insulation. And that's how it's going to win. Different things are going to be working better when the market's great. And other parts are going to be doing fine when the housing market's not doing great.

6:43Matt Frankel:Well, it's certainly a trophy acquisition here for this company that's been known to make acquisitions. We'll have to wait and see how competitors respond and how in the space that this big move, this big swing that it just took. So we'll just have to monitor that in the months and years ahead. But after the break, we'll be taking a look at what is new with Tesla's robo taxis. You're listening to Motley Fool Money.

7:07Jon Quast:Trading at Schwab is now powered by Ameritrade, bringing you an expanding library of education with even more ways to sharpen your trading skills. Access new online courses, insightful webcasts, articles, engaging videos, and more, all curated just for traders. Plus, guided learning paths with content designed to fit your unique interests. No sifting to find exactly what you need so you can spend your time learning to trade brilliantly.

7:34Matt Frankel:Learn more at schwab.com slash trading. Welcome back to Motley Fool Money with the Hidden Gems team. So this is quite interesting. Tesla over the weekend, it's announcing that its robo taxis are entering into new markets. They've been operating in Austin, Texas since June of last year. Now they're saying that they're going into Dallas and Houston. But I just have to wonder, is there anything really to care about here? Because there's some reports saying that there's only one car in each of these two new markets. So, it feels a little bit crazy to talk about this when there's only one car, Matt.

8:10Jon Quast:Yeah, I read the reports that only one car has been registered so far in each of these markets. And of course, having a single vehicle in Dallas and Houston is not material to Tesla's business at all. So far, the robo-taxi business isn't material to Tesla's business. But this is an important milestone. They're a long way away from the cyber cab becoming the highest production vehicle in its lineup, as Elon Musk has predicted. But the reality is that building a robo-taxi service is extremely hard. Just ask GM, which is great at what they do. And Tesla's doing a pretty solid job of it so far.

8:45Matt Frankel:Well, I mean, what is the case that we should pay attention to this year? If I'm looking at this, I'm saying Tesla's already worth over a trillion dollars. It's all based pretty much on the auto business that it has right now. Shouldn't we focus on that and not this potential robo-taxi business that seems really far off in the future?

9:05Jon Quast:Yes and no. I would first argue that the trillion-dollar valuation does have a lot of this kind of thing baked in. It's this. They have the energy business. There's a lot of the robotics business. There's a lot that they're planning to do. But it's really tough to overstate what a big opportunity Robotaxis could be. And as time goes on, it's looking like there are going to be fewer and fewer big winners as companies like GM have thrown in the towel. Tesla is going to have to compete for market share, but not with a ton of companies. Auto executives have called this a multi-trillion-dollar market opportunity.

9:36Jon Quast:I think GM was throwing around a$5 trillion figure for a while. And I think that might be pushing it. But I read an outstanding research report recently that they made a realistic case that robo-taxis are going to be a$190 billion revenue opportunity 10 years from now. For context, Tesla's entire revenue in 2025 was about$95 billion. If there's not that many different major competitors, that's a big pie. Robo-taxi revenue, and here's the key point, could have much higher margins than Tesla's core automaking business. That's really where the opportunity is. It makes sense that Tesla's investing heavily here.

10:14Jon Quast:Don't read too much into the only one-car narrative. As long as Tesla keeps making forward progress at a reasonable rate without any major setbacks, like their cars running over somebody like GM had that essentially killed their business, it's good news for investors.

10:30Matt Frankel:Jason, when we talk about competition in this space, we look at the different players that are out there. Not all of these autonomous vehicles are built in the same way. There are technical differences between them. I'm just curious, do you think that Tesla, as it's looking to scale, it's saying maybe eight to 10 metro areas this year, but what are the technical, does it have the technical expertise, the technical advantages to scale this technology? Yeah. So this, this may not be a popular take before I kind of get to my take here. Let's talk about really the difference in what Tesla is doing from anybody else.

11:05And that's really what it comes down to. It's kind of sensor focus. It's mostly camera-based optical sensor focused. Most of the rest of the industry is using LIDAR, other technologies. Radar is pretty popular across pretty much everybody. But what we're finding is that the benefit of doing that is that it's, from a hardware perspective, should be substantially cheaper, even though LIDAR has gotten much, much lower cost. But I think, again, as much as Musk's had this long history of promising things are going to happen next year, they eventually happen, but it's four or five years later. I think as much as anything that might be promoting, but also I think it's largely just how aggressive Musk is, right?

11:46Eventually, a lot of these things do happen, but that technical approach that Tesla's taking, we're seeing the challenges of it in real time. How much longer it's taken to get outside of Austin is much, much longer than Musk initially promised. The decision to not use technologies like LiDAR require the software and the hardware that's doing the processing to do a lot more heavy lifting. And it's clearly been the biggest challenge, I think, to scaling up autonomous taxis compared to Waymo, which is definitely the leader in terms of they have 11 markets they're in. They do a half a million paid rides a week.

12:25Now, they're geofenced. They're only in very specific areas. And Tesla says, look, our goal is to try to get into more places quicker over the long term. And we have billions of miles of cars driving autonomously in the wild. And that data is helping inform the decisions that we're making. But the reality is, it's been a much, much harder process. and the expansion, the slow expansion of the auto taxi business for Tesla does concern me that its technical approach might be, if not a failure, certainly ends up putting it far behind other competitors that just have a substantial lead.

13:10Matt Frankel:So I guess maybe the other thing there to your point there, and I'm going to just kind of throw Matt here on the spot. If it is a more data software kind of play here, Matt, do you think that Tesla with XAI, kind of a sister company, does it have that software advantage to make a really strong competitive case here in the market?

13:32Jon Quast:I would say yes. I mean, Tesla's been developing, I mean, how long has Elon been promising full self-driving? But they've been developing autonomous vehicle software essentially since the Model S came out. Every mile a Model S is driven, essentially, has been recorded in one way or another. They have a ton of data. They've had more cameras on their vehicle than anyone else. They've had more sensors on their vehicle than anyone else. They do have somewhat of a technical advantage. Like I said, it's really hard. Jason just mentioned this too. It's really hard to build a robo-taxi service, a lot harder than companies originally thought.

14:08Jon Quast:But it looks like it's going to be a two-horse race essentially right now. And I'd rather them do it slow and steady than to go too fast like I think GM did and have a game-changing setback. And both of these companies are doing a good job, and there's room for both to be winners. I would bet on Uber and Lyft to be winners from AutoTaxi before I would bet on anybody making the hardware. I'll throw that hot take in there.

14:34Matt Frankel:Okay. Well, and it may be time to bet on the technology when I finally ride in one. I don't know when that'll ever happen. But when we come back, we're going to be taking a question from your mailbag. This is Motley Fool Money. Support for the show comes from Fundrise. Investing in companies already in the S &P 500 can sometimes feel like you're being served someone else's leftovers. It's still a great meal, but it's hard not to imagine what the food tasted like when it was fresh out of the oven. Historically, only venture capital investors were served access to the best tech companies in the world that had not gone public yet.

15:08And that meant the rest of the world simply had to sit on their hands and wait for an IPO. Fundrise says they're completely upending that dynamic with its new venture capital product. With just a$10 minimum investment, Fundrise's mission is to give everyone the access required to invest in the best tech and AI companies before they go public. There's nothing wrong with leftovers, but now, if you want, with Fundrise, you can take a seat at the table alongside the biggest names in tech investing. Visit Fundrise.com slash Fool to check out Fundrise's venture portfolio and start investing in minutes.

15:41All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. This is a paid advertisement.

15:49Matt Frankel:Welcome back to Motley Fool Money with the Hidden Gems team. One quick note, we want to make you part of the conversation. If you have a stock or investing question for Matt, myself, Jason, when he's on, Rachel, the other times that she's on most weeks. If you have a question for anybody, you can now email us at podcastatfool.com. We'd love to have mailbag segments whenever possible, so send in your questions, but remember to keep them foolish. That email again is podcastatfool.com, podcastatfool.com. And that is where we're going right now from your mailbag question sent in. This is from Patricio Venturi from Argentina, a country that I love and used to live in for a short time.

16:31Matt Frankel:Here's a question. Hey, Motley Fool podcast team. As you mentioned, sometimes in the podcast, deciding to sell a stock is not always so easy to do. And it's what I struggle with the most. And he goes on to detail kind of how he developed an investment thesis for one company. and he decided to sell that position. I'm not going to read the whole thing. It's a little bit long here. But basically, fast forward, he says, when I first bought the tech and the product seemed cutting edge and was promising. But as I followed the results, started to say that maybe it was struggling and didn't seem to have as much opportunity for the future.

17:09Matt Frankel:And so, wound up selling this stock at around$17 a share. And that was in December. Now the stock is trading at$20, really feels like he made the wrong choice here by selling that stock. But to me, gentlemen, it sounds like Patrice was assuming he's made the wrong decision here because the stock went from 17 to 20 in four months. But my question here for you, Matt, is can it be the right move to sell a stock even if you didn't time the top perfectly?

17:45Jon Quast:I understand why it seems like that. The stock went up after he sold, and that's despite the market generally falling over that time. But I love this question because it brings up a great point that all investors should understand. I can't say this loudly enough. You are not going to sell at the top. If you do, it will be because you got extremely lucky, not because your analysis was that spot on. In simple terms, stocks move for a variety of reasons, including for no logical reason at all over the short term. In fact, when I'm reading it, the listener's analysis sounds solid at first glance, and it sounds like they indeed sold for a good reason.

18:25Jon Quast:There are some excellent reasons to sell a stock and move on. Your original thesis for buying no longer applies. You're seeing material weakness or increased risk, which seems to be the case here, or simply because you need the money for something, just to name a few of them. But because the stock went up and I think we're at a peak is not one of them. Matt, that's so true. And I have a couple of thoughts that are going to tie in a little bit to what you already said there. And the first one is, I want to caution anyone, as you were saying, who's putting in the work to study the businesses that they own or want to own to not fall into the precision trap.

19:02As you said, you can't sell the top. at best, we can just hope to be directionally on the right track. And even six months after selling a stock, we haven't collected enough data to find out if the broken thesis is really true or not. And the business is going to struggle. It takes right now we're still in the voting booth, right? We haven't moved on to the weighing of the value of the business part that takes years to happen. So that's an important thing to remember. And I think this is just especially true on selling. Personally, I tend to be really glacial on selling with two exceptions. Number one is if a stock becomes such a large portion of my portfolio that I want to reduce the downside risk.

19:44I don't want to fall in love with my investments because I love them. I bought them to grow my wealth and sometimes take a little bit off the table because of the downside risk. But that has to be pretty large for me. My experience is that selling just on price usually doesn't work out in my favor. It doesn't sound like that's what this listener did, but now they're measuring themselves on the price and not what the business is doing. So looking at the business performance six months later versus the stock performance is probably a better way to measure whether your analysis was right on. This brings me to my second thought.

20:20When it comes to selling, Matt, you talked a little bit about this. If you've reached a financial goal and you don't need a stock, you need money, Okay, that's easy. But if you're planning on selling a stock and then reinvesting it, you gotta get two decisions right. Number one, you have to be right in your analysis that this is a business I should sell. Then you have to be right in your analysis that this proceeds that I'm reinvesting, that this is a business that I should be buying. And for me, that's one of the reasons I'm glacial in selling. Unless there's a clear reason that it's time to sell, sometimes I don't wanna rush myself because it's really hard to get one decision right as an investor in stocks, getting two decisions right, even harder.

21:00Matt Frankel:I want to just kind of summarize the question that Patricio had was what are the key signals? And Patricio, what I hear Jason and Matt saying here is that the things that you listed out, you talked about the tech, you talked about the product when you bought and you thought it was cutting edge and promising. That's a good directionally thing to look at when you're buying a stock. You had a investment thesis, we call that. But then you said that you were looking at the earnings per share, the profit margins, the revenue, and it wasn't living up to your expectations and that's why you sold. So what are the key signals?

21:37Matt Frankel:You're mentioning all the things right there. You're talking about the product that the company sells. You're talking about the financials of the business. Those are the key things. when it's no longer playing out as you intended, then yes, that is something that you say, hey, I had an idea here and it doesn't seem that my idea was right. Maybe it's time for me to move on. But the closing thought, and maybe you each can weigh in on this, the closing thought I had was it seems like Patricio really likes buying stocks, like researching and buying things. And that's kind of the fun part for him. And just kind of, I wanted to mention one of the key tenants in the Motley Fool investment philosophy is add new money regularly to your portfolio if you can.