RBC on Tesla (TSLA): 'Federal deregulation on AVs would be a bigger positive than eliminating the $7,500 credit would be'

RBC Capital analyst Tom Narayan comemnts on Tesla (NASDAQ: TSLA) after Bloomberg report that President-elect Trump's transition team could be making pursuing a federal framework around autonomous vehicles a priority early in the new presidential term.

The analyst said: "As we discussed last week, federal deregulation on autonomous vehicles would be a positive for Tesla shares. Robotaxis account for 44% of our valuation. We also think this has implications for FSD, which we believe will ultimately reach Level 4 status. Federal deregulation would help here as well. FSD accounts for another 33% of our valuation and we see private AVs becoming living rooms, bedrooms and offices on wheels. These will also be purpose built vehicles. While we do see federal deregulation on AVs as a positive for Tesla, the company still has a ways to go to prove that its camera based system will ultimately work with limited interventions. As we understand it, FSD's next version (13.0) is tracking at ~10k miles before intervention, compared to Waymo's 17k level. Moreover, in states like California, getting robotaxi licenses might mandate using lidar systems. It is unclear to us if creating a federal AV policy framework would supersede. We still believe that last week's press surrounding the new administration's proposed attempts to eliminate the $7,500 credit for new EV purchases would be a net negative to Tesla. Management did say in its Q3 result call that it would be a net positive given that Tesla has a cost advantage over other EV makers. While this later point might be true, we think Tesla's real competition is not other EV makers, especially in the US where EV penetration is still in the single digit percentages. Rather, competition is ICEs and IRA federal credits are an important aid to re-accelerate EV demand which has stalled in recent months. All that said, given that autonomy is a much bigger driver of valuation versus cars, we think federal deregulation on AVs would be a bigger positive than eliminating the $7,500 credit would be."

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Shares of Tesla closed at $320.72 yesterday.

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