Why Doesn't Tesla Buy Lyft?

Elon Musk doesn't appear interested in launching a ridehailing company with human drivers for the time being. However, making a play for Lyft could be worth his while.

Photo Credit: Thought Catalog

Summary

• Tesla CEO Elon Musk does not appear to be interested in launching a ridehailing company reliant on human drivers.

• Uber and Lyft have likely avoided competition from Tesla for the time being, but any unexpected advancements in self-driving would be tremendously disruptive to those businesses.

• If Tesla does change course and launch Tesla Network with human drivers, we believe Uber, Lyft and Turo may ban Teslas on their platforms.

• If Tesla vehicles are banned from Uber, Lyft and Turo, it may slow adoption rates unless Tesla Network has a large enough customer base.

• Tesla should potentially play offense by making a play for Lyft.

Elon Musk Tweet & Tesla Network

Well known Tesla analyst Tasha Keeney from ARK Invest came out with a new note: Could a Tesla Ride-Hailing Network Run Over Uber and Lyft?. Tesla CEO Elon Musk's tweet in response to its publication, has potentially confirmed that he isn't interested in launching an Uber and Lyft rival in the near future or at least until full self-driving (FSD) is more developed.

Last year, Musk announced that a fleet of one million Tesla robotaxis could be deployed in certain jurisdictions by 2020, but that has not yet come to pass. The pandemic may have caused delays to such plans, but it also appears Tesla’s FSD technology is currently going under a “fundamental architectural rewrite”, according to a recent tweet. However, whether the plans are delayed by 6 months or 24 months it still appears, Musk is very much aiming to launch a robotaxi service.

His vision is powerful, and I tend to agree with the overall arc of how Musk sees the auto OEM/mobility services story developing. The only difference is I think it plays out over the next 5-10+ years, while he sees it becoming a reality within the next 3 to 4 years. Musk envisions the Tesla Network to be a combination of offerings, including peer-to-peer car rentals (similar to Turo) and a ridesharing service, such as Uber. For example, Tesla owners will have the ability to lend out their vehicles, autonomously, when they are not driving, allowing both the owner to earn extra income and Tesla to earn a commission (25-30%) for facilitating the transactions. In the event there are not enough owners willing to lend out their vehicles, Tesla will also have its own fleet to deploy.

Many analysts and fans, sensing the robotaxi deadline wouldn’t be met, reasoned that Tesla didn’t need to wait for FSD technology to launch the Tesla Network. Instead, they figured Tesla could take an immediate step and launch a traditional ridehailing company with human drivers, directly competing with Uber and Lyft. Tasha from ARK essentially makes the point that Tesla could be a vertically integrated ridehailing player and that the cars would also be cheaper for drivers to operate vs. gas-powered alternatives. 

What if Tesla Network launches with human drivers?

Let's assume Elon changes his mind and launches Tesla Network with human rideshare drivers. If you were Uber, Lyft or Turo an immediate way to act on that news is to ban Tesla vehicles from your platforms. If this were to happen it would, in my opinion, cause many current or future rideshare drivers and Turo fleet owners to think twice before purchasing a Tesla. Demonstrably consistent income opportunities would have to be shown on Tesla Network at launch, which would be hard to imagine at scale.

Another way Tesla could rapidly enter the ridehailing market is to acquire Lyft. A potential purchase price could have a wide range of values, but would likely be between $10bn to $20bn EV, a deal that could be funded with Tesla shares. Obviously, the majority of cars on the Lyft platform wouldn't be Teslas, but Musk could phase that in over time by offering rideshare drivers incentives to buy Teslas over the course of the next 1 to 3 years. This would also boost Tesla North America sales.

A major hitch preventing the deal could be Lyft's dual-class share structure where Lyft co-founders Logan Green and John Zimmer hold Class B "founder" shares. Each Class B share has 20 times the voting power as a Class A share. Post IPO it was reported that Green and Zimmer had nearly 50% of the voting power, while only holding an economic interest in Lyft of less than 5%. This could interestingly be an opportunity for Musk to also build a Tesla leadership team as well (i.e. make Green & Zimmer co-heads of Tesla Network).

Obviously if Tesla can launch a fully autonomous ridehailing fleet soon, then the above wouldn't be relevant. It is not immediately clear though if FSD technology will be ready soon (i.e. next 1 to 2 years). Many Tesla fans and analysts may be disappointed by the delay in the launch of Tesla Network, but why couldn't Elon act on his ridehailing ambitions by acquiring Lyft?

Let me know your thoughts.