Al Root

The battle over self-driving cars and the future of ride-hailing is slated to start in Austin, Texas, in just a few weeks.

How it goes can help investors figure out how trillions of dollars in market value will be allocated.

Tesla plans to launch a self-driving robotaxi service in 2025, taking on Uber Technologies and its human drivers, as well as Alphabet's driverless Waymo fleet.

Tesla's first foray into the ride-hailing market could come as soon as June in Austin, according to CEO Elon Musk.

It will likely be using vehicles owned by regular drivers who opt into a robotaxi fleet as well as some cars it chooses to operate. Tesla vehicles will be running its ever-improving camera-driven driver assistance product called Full Self-Driving. Waymo will be using relatively more expensive cars with more sensors. Uber will use humans.

Another wrinkle to the coming competition: Waymo, which operates in Phoenix, Los Angeles, and San Francisco, is about to start service in Austin and will offer Waymo rides on the Uber App.

Waymo and Uber appear to be playing nice. Uber has a lot of demand aggregated on its network. It makes sense as a partner. Tesla is a hold out.

"They want to build it alone, so to some extent in Austin, [Uber] and Waymo will be competition with Tesla when they launch," said Uber CEO Dara Khosrowshahi at the Miami FII Institute Conference over the weekend.

How pricing and market share turns out in Austin will be important for investors to watch. Self-driving taxis can be a trillion dollar market opportunity. Americans alone drive some three trillion miles a year. It costs roughly $1 to $2 a mile to own and operate a car. Robotaxis beating that price could alter how people interact with personal transportation in a move as big as the one from horses to cars.

Some of that potential is reflected in Tesla stock. Through Friday trading, Tesla shares were up about $100 apiece, adding $310 billion in market value since the company's Oct. 10 Robotaxi Day, when it outlined some of its plans.

Investors aren't exactly sure what self-driving cars mean for Uber. On one hand, Tesla represents an existential threat to the company. If Tesla's solution turns out to be effective and low cost, it could take the lion's share of the market. On the other hand, 80% of Uber's cost structure is tied to drivers and insurance. Self-driving cars could lower costs, expanding the market for everyone.

And Uber can adopt other's self-driving tech. It may eventually be able to buy Tesla Cybercabs that Musk plans to start selling as soon as 2026. "We don't think it's going to be a winner-take-all marketplace," added Khosrowshahi.

Tesla's valuation indicates investors expect it to do well, to say the least. Shares trade for about 90 times estimated 2026 earnings. The S&P 500 trades for closer to 20 times. Uber shares fetch about 23 times and Alphabet shares trade for about 18 times.

Still, Tesla has yet to complete a paid fully autonomous taxi ride. Waymo completes more than 150,000 a week.

Austin, the city known for keeping it weird, will be interesting this summer.

Write to Al Root at allen.root@dowjones.com

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February 23, 2025 12:17 ET (17:17 GMT)

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