Tesla Robotaxi Day & the Competition’s Response

0:01Travis Hoium:Is Tesla's robo-taxi inflection finally here? Motley Fool Hidden Gems Investing starts now.

0:11Travis Hoium:Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium joined today by Lou Whiteman and Rachel Warren. And we've got to start with, I think, one of the biggest topics of the week, and that is Tesla. Lou, they have a robo-taxi event tomorrow. This seems like a pretty big deal. The stock was up last week when they announced this. There's a lot of excitement for robo-taxis, and yet we don't really know many details. Is that where we're at with this?

0:37Lou Whiteman:Is there an event? Do we know? Yeah, I'm not sure. So this is weird. We don't have a time for this event yet. There's nothing on the investor relations page. The only mention I can find on Tesla's website is there's a customer contest for this. So I guess it exists. If you take a rideshare with Tesla in Austin last week, I think you are eligible to end up with an invitation. So here's the thing. I think this is a marketing event. I think that, you know, that's fine. We know that they have been building these cyber cabs for a while. They had a separate event announcing that a few years ago when they introduced the thing and started building them.

1:14Lou Whiteman:In every Tesla place in Atlanta, there's one of these just sitting prominently parked at the corner, which I think is probably not a coincidence. I haven't actually seen them driving around with the Lyfts and the Waymos and all that around Atlanta. But what we don't know yet is have they received regulatory approval to operate them? And do they feel that they don't need it because they're complying with norms? Like exactly, are they going to announce that these are going to be in service? That I think is much more interesting. And I hope there is a live stream because I'd love the answer to that question.

1:47Travis Hoium:Rachel, to just give a little bit of background. So that event that Lou was talking about was the Wee Robot event. That was almost two years ago at this point. Tesla also launched their autonomous vehicles, the robotaxis, which were actually Model Ys. Over a year ago in Austin, they still only have a couple dozen that are actually operating at any given time. They recently added, I believe it's now 45 robotaxis. So not Model Ys, but the actual new robotaxi to the registration list that they have in Texas. I think to Lou's point, in theory, Texas is a little bit different than California, where California kind of gives you a stamp and says you can go ahead and have commercial customers.

2:26Travis Hoium:Texas is a little bit more self-regulated. So it seems like they could, but we don't know exactly the details. So what do you want to see from this event to know that this is more than just kind of another announcement that isn't going to go anywhere for a while? I mean, I think one of the big questions is how close are we getting to deployment that isn't entirely within a very, very restricted geofenced framework where you still have a lot of, you know, remote human staff intervening to guide vehicles? I think that there's still a lot of questions about that. I mean, you got to go back as well.

2:58Ten years ago, Tesla projected it would deliver a million autonomous robo taxis by the year 2020. We might all know that that was a window that passed without deployment. Now, I'll note, you know, talking about where we are today going into this event, they do have their ride hailing network. It operates across seven U.S. markets. It is within a very restricted geofenced framework. Essentially, what that means when we talk about this, it's a virtual boundary on a digital map. It restricts where the self-driving car is legally permitted to operate, where it's programmed to operate. So they've got their Model Y rides active across six of these geofenced regions, Austin, Dallas, Miami, Orlando, Houston, Tampa.

3:36The operations in the Bay Area are very limited to human monitored safety rides, and that's due to California specific regulatory frameworks. And ahead of this event, they've expanded to over 270 vehicles and registered, as you noted, Travis, 45 production ready cyber cab prototypes. I think there's still a lot of questions about their vision only approach. I mean, Tesla relies, as we've talked about on the show before, strictly on basically this end-to-end camera and AI setup. It really diverges from competitors who rely on multi-sensor LiDAR and radar. One final thing I'll note that's kind of interesting, you know, what's the long-term vision here?

4:10We will hear more about that. But Musk has said in the past that Tesla intends to market and sell the cyber cab directly to individual consumers for under$30 ,000. And he's had this vision of it as a private business model where owners monetize their personal vehicles on the network. But of course, if consumer sales fail to scale that way, Tesla would essentially have its own very capital intensive corporate owned network. And that would really drain the balance sheet. So there's a lot of questions about how that vision has evolved, where it's going, how close the deployment is to getting a little bit closer to what the competitors are doing.

4:46Travis Hoium:Lou, on the event itself, I'm curious how you think about these events. It was almost 10 years ago. It's actually in October that they had the solar roof event. That was actually before they completed the solar city acquisition. But that was the first one to me that I just remember so vividly because I think there was a start time. It was live streamed and it started something like five or six hours late.

5:11Lou Whiteman:On the set of Desperate Housewives.

5:13Travis Hoium:on the set wasn't it yeah yes yes but since then i've just gone i was so excited about that event it was solar industry was an area that i covered there was this you know new product that could be revolutionary by the way they have now shut down that product but since then it just seems like we have seen over and over with these events that they're more like you said marketing events it's more you know building up this big vision of the future than actually delivering the thing that people actually want, which was a solar roof. It was an autonomous robot. It was an autonomous vehicle that they showed off two years ago.

5:50Travis Hoium:So should we go into this with relatively low expectations?

5:54Lou Whiteman:Maybe. And again, this is an investor show. So what does this mean for investors, right? Look, Elon is very good at the vision thing and very good at making presentations and getting people excited about the future. So I am not going to ever discount the possibility that any event, this event can do that. That said, there are 4 ,000 Waymos on the road right now. They are picking up and doing, I think it's what, half a million paid trips a week. I feel like in this world, just a PowerPoint presentation with what we hope to do or what we intend to do has lost some of its oomph, right? Waymo has raised the bar.

6:37Lou Whiteman:I don't think it's enough to say this This is what we want to do. Someone else is actually doing this right now. So what moves the stock on this? Get out there and actually do this at scale over wide geographies. When you are, by definition, second best at this moment, the promise of we're going to get there means a lot less than when nobody was doing it and you were talking a good game about how you were going to get there.

7:02Travis Hoium:I do want to get to those competitors. So we'll be back with more on that in just a moment.

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8:40Travis Hoium:Tesla is absolutely getting all the headlines when it comes to robo taxis, but they are definitely not the only player. Waymo is operating in what a dozen cities. Uber says they're going to be operating in a dozen cities around the world by the end of this year. Some of those are actually already in operations. So Rachel, the first question that I have is the big disagreement among this industry. I'm really excited about autonomous vehicles. I think this is one of these things where I look at which one of my children is never going to have to learn to drive because they're going to be coming of age, you know, turning 16 when autonomous vehicles are absolutely everywhere.

9:13Travis Hoium:But has Tesla answered the question of can you do this with only vision, with only cameras and like a really good AI underneath? Have they proved that out? And we could we hear tomorrow that they are actually going to bring these vehicles to market at scale? I think it's possible that we could hear more favorable news on that front. And I'm not discounting the quality of Tesla's technology. But I have to say, I don't think that they have demonstrated, and this is partly shown by the scale of their deployment compared to competitors, I don't think that they have fully demonstrated that a vision-only system is sufficient for safe, fully autonomous operations of scale.

9:52And I think part of that is borne out again when you look at the scale of their deployment compared to the competition. I mean, yes, they've expanded their geofence to trial markets, as I was talking about in the prior segment. But you think of Waymo, They have over 200 million real world miles of data to argue that safe driverless deployment requires a redundant worldview essentially built on cameras, LiDAR, radar sensors. And there has been a lot of debate and many investors fall on opposite sides of this debate about Tesla's end to end AI architecture. And essentially it processes raw pixels.

10:22It directly outputs steering commands. But the concern is that there could be, to borrow a term, black box failure risk, which is essentially where AI hallucinations could occur in physical environments. And there's an argument for multi-sensor setups like what the competitors like Waymo are using, which essentially allows engineers to trace exactly why a vehicle made a specific driving decision and tweak that for the future. Now, another thing I'll note, you know, there's still a lot of questions in terms of Tesla being able to demonstrate that its camera only system can reliably handle severe weather, certain sensitive zones like school zones without the safety net of remote human operators.

11:01So there's still a lot I think that they have to prove here.

11:03Travis Hoium:Yeah, Lou, some of their incidents in Austin, which have to be reported, were actually related to school buses and not stopping for school buses in the way that they should. The other question I have about Tesla in this space, because I think when you look back five to maybe 10 years, you could make a really, really good case that Tesla was going to have a first mover advantage and just obliterate the competition. Today, I mean, you're in an area where Waymo is operating. I'm in the Minneapolis area. There are a few Waymos here, surprisingly enough, even though this is the northern part of the country.

11:33Travis Hoium:but are we at the point where these other competitors which are using a multi-sensor approach which have proven out their safety features which are starting to scale we're at you know dozens of vehicles or hundreds of vehicles in the case of Waymo maybe thousands but if there's a dozen companies that are doing this and are all growing has that first mover

11:53Lou Whiteman:advantage been lost by Tesla I'd push back on the idea that they ever had a first mover advantage here. They were louder. Waymo was going about its business while Tesla was doing events. And so we might've perceived that Tesla must be far in advance because they were screaming, look at us. But I don't think they ever had the first mover advantage and no, they don't have it now. Arguably they might've had it in driver assist. And if so, even that, I test drove a Tesla when I bought a car this year. And I will tell you, Tesla's full self-driving or whatever driver assist is better than honda's i don't know if it was 99 a month better though i mean most of the features that i get for free on the hondo you know we're about there look the camera thing you know rachel said investors argue about it we can argue about it here none of us are engineers you know

12:43Travis Hoium:as a driver i can tell you that hey hey hey we have one engineer here all right none of us are

12:48Lou Whiteman:engineers who have extensively studied this yes that's true as a driver we all know that there There are days when it's foggy or the sun is in our face where cameras don't feel like enough. And that's where I love my Honda technology. But I'm not going to say it's impossible. What I will say is, is that it feels like the burden of proof should be on the company that is saying we can get by with less. And I would like for Tesla to actually prove that without human guinea pigs before we come to the conclusion.

13:17Travis Hoium:Yeah. And this is something I've struggled with because it is a little bit unclear. If you look at the data that's coming from California, you can go through Waymo, look at every, I mean, I looked at their incident reports and it's things like signs falling on vehicles, which they have to report as an incident. It's, you know, somebody rear ending a Waymo. A lot of them are pretty innocuous and not Waymo's fault. Tesla operates in areas where they don't have to report and they actually redact a lot of that information that is reported to either the federal regulators or to state regulators as well.

13:47Travis Hoium:So I totally agree with that burden of proof side of things. So I'm excited to see what we hear because I want to hear more that they are actually going to be doing these things and scaling. But I think, you know, expectations for investors should be set pretty low based on the performance after some of these events in the past. When we come back, we're going to get to one of the big earnings reports of this week. That is Dell. You're listening to Motley Fool Hidden Gems Investing.

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15:00Travis Hoium:It's a slow season for earnings, but we did get an interesting report yesterday from Dell Technologies and Rachel. Dell isn't a company that I follow all that regularly, but as we were talking about this before the show, Dell stocks, since they came public again a second time, up 3 ,600%. And just this year, shares are up 247%, in part because their numbers have been phenomenal. So what do we need to know? Just to talk about their recent earnings report that just came out. I mean, they beat analysts' expectations. But a lot of this is coming from AI server demand and just kind of the broad modernization of data center infrastructure.

15:35So revenue was up 58 % year over year. Adjusted earnings per share reached$7.04. That was a 203 % increase from a year ago. Significantly outreformed what analysts were expecting. their infrastructure solutions group, one of their key segments, that was up almost 90 % year over year. They also closed out the quarter with a record backlog of$95 billion. You know, for anyone that's not kind of familiar with the modern iteration of Dell, I mean, they're building high-performance AI servers, AI-powered personal computers, and enterprise data platforms to help businesses run large AI workloads. And so they are seeing, you know, record demand for their solutions.

16:13And we're also seeing a time where corporate spending on AI has moved into a lot of, you know, concrete hardware deployments. And we're seeing that show up in their backlog. It's interesting because for many years, Dell was sort of this mature, low growth, single digit growth business. It was tethered heavily to corporate spending cycles. And now it's really positioning itself as a primary physical integrator for the enterprise AI boom. They certainly are benefiting from incredible growth tailwinds in the AI space. I think that stock run-up, that is a rich valuation. I would approach that with caution.

16:47But certainly, this was an exceptional quarter for the business. They have major partnerships with Alphabet, OpenAI, ServiceNow, and others. So there's a lot of good things that they're doing right now. The business looks very different than it did five or 10 years ago.

17:00Lou Whiteman:And still, for all the gains, still priced under 25 times expected earnings, which is interesting, at least. As an investor, I don't know what to make of Dell, but I'll say this. I find it hard to believe the sky is falling on AI when I see numbers like this, when I see just kind of backlogs. The big picture for me here is that for all the talk of how long can this go on, I think longer. I think we made the momentum slow, but I think all of the evidence is that it's going to take some sort of massive inflection point to force companies to kind of stop this dance. and there are no signs right now for all of the legitimate reasons to say everything is overvalued, for all of the legitimate reasons to say, maybe it's time to get out.

17:44Lou Whiteman:I just don't see any indication. Maybe you just won't see it, but I just don't see any indication to say, oh no, this ends soon. My guess is it goes on for longer than we think just based on numbers like this.

17:56Travis Hoium:All right, there you have it. The AI bull, Lou Whiteman. As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows The Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Lou Whiteman, Rachel Warren, and Christy Waterworth behind the glass, I'm Travis William.