Will driverless cars support another surge in Tesla’s share price?

Tesla’s [TSLA] share price has continued to soar this year as it recently exceeded the $2,000 mark on 20 August, setting a new all-time high for the stock.

It didn’t stop there though, as Tesla’s share price went on to close at $2,238.75 — up 435.16% year-to-date — prior to its recent share split.

Following the five-for-one split, Tesla’s share price suffered a dip, dropping 10% from 31 August to 2 September. However, the stock is still up 372.98% for the year to 3 September.

Not only has the company gone on to surpass Toyota to become the world’s most valuable car manufacturer, but Tesla's share price has a market capitalisation of $386.4bn despite generating less than $1bn in trailing-12-month free cash flow.

Whilst some say Tesla’s share price is overvalued, others are buying into the story of this growth stock and believe that Tesla will continue to lead the future of driving.

If Tesla has anything to do with it, that future will be driverless.

Could driverless cars be closer than we think?

In a recent tweet, Musk said: “The [full self-driving] improvement will come as a quantum leap, because it’s a fundamental architectural rewrite, not an incremental tweak.”

Furthermore, Musk went on to write: “I drive the bleeding edge alpha build in my car personally. Almost at zero interventions between home & work. Limited public release in six to 10 weeks.”

“I drive the bleeding edge alpha build in my car personally. Almost at zero interventions between home & work. Limited public release in six to 10 weeks” - tweet by Elon Musk

If Musk is right, then we’ll see Tesla’s share price boosted not only by driverless cars, but an autonomous “robotaxi” ride-sharing service as well — and both could come sooner than we think. While this isn’t the first time that Musk has made such ambitious claims, the effects of self-driving technology will shake up the electric vehicle (EV) sector if it goes according to plan.

In July, Musk said that updating Tesla cars’ software with the latest version of Autopilot would mark “the biggest asset value increase in history”. By his estimations, such an update would make the Tesla vehicles eligible for the update five times more valuable.

The thinking is that this would work in two ways. The owners of Tesla cars that are capable of self-driving would be able to rent their cars as self-driving taxis. Effectively, this would give owners a new stream of revenue — rather than paying for parking.

This would lead to time that “drivers” would get back by not driving. Time that Musk believes can be spent better by, for example, installing video games to a vehicle’s touchscreen (which he’s already done).

However, these are nothing but daydreams until — or unless — Tesla succeeds in creating driverless vehicles, ideally before the competition.

As the EV market has been heating up for some time, with companies such as Nio [NIO], Nikola [NKLA] and Workhorse [WKHS] all battling for first place, the race for fully driverless cars is also picking up speed.

What the analysts think about Tesla’s share price

Despite claims of overvaluation, analysts at ARK Invest think there’s still plenty of room for growth in Tesla’s share price. In a note to investors, the firm said it believes that the share price will settle at a maximum of $3,400 if the EV company is unable to pull off autonomous driving, but up to $22,000 if it can, according to The Telegraph.

The median adjusted forecast among 32 analysts offering 12-month projections on Tesla’s share price stands at $297 according to CNN Money — with a high estimate of $800 and a low of just $17.40. The median price target would represent a 27% drop from Tesla’s share price at close on 3 September.

“We continue talking [about the] EV market, the appetite continues to be there for investors... Remember, it’s valued as a technology name, not an automobile company — despite the haters continuing to scratch their heads as the stock moves higher” - Dan Ives, managing director of Wedbush Securities

The consensus among 37 analysts polled by CNN Money is to Hold Tesla shares. This comes from a majority of 18, with seven giving the stock a Buy rating. On the other hand, three analysts have given the stock an Underperform rating, while eight analysts rate Tesla’s current share price a Sell.

“We continue talking [about the] EV market, the appetite continues to be there for investors,” said Dan Ives, managing director of Wedbush Securities, in an interview with Bloomberg. “They’re the king of the hill. [...] We still think there are bright days ahead for Tesla. […] Remember, it’s valued as a technology name, not an automobile company — despite the haters continuing to scratch their heads as the stock moves higher.”