Just when you thought Elon Musk has had enough headaches for one day, here comes Vertical Group's Gordon Johnson with some more bad news for the flamethrower man.
Are TSLA's Claims That Its Autopilot Feature Reduce Crash Rates By As Much As 40% Exaggerated?
Quick Take: In short, we note this recent blog post from TSLA (link) dated March 30, 2018, where the company stated:
“Over a year ago, our first iteration of Autopilot was found by the U.S. government to reduce crash rates by as much as 40%. Internal data confirms that recent updates to Autopilot have improved system reliability.”
In our view, this statement has been used by TSLA many times in the past, and has been a key underpinning of its “software advantage”. Furthermore, institutional analysts have used it as a means to justify TSLA’s current valuation (link).
However, we note this article from Reuters, published last week, which has gotten very little fanfare – link. More specifically, the article states:
“In 2017, NHTSA closed a probe into a May 2016 fatal crash involving a driver using the system and cited data from the automaker that crash rates fell by 40 percent after installation of Autopilot’s Autosteer function. Tesla has repeatedly cited the statistic in defending the system. NHTSA said Wednesday that its crash rate comparison “did not evaluate whether Autosteer was engaged.” The agency added that it “performed this cursory comparison of the rates before and after installation of the feature to determine whether models equipped with Autosteer were associated with higher crash rates, which could have indicated that further investigation was necessary.”
CONCLUSION: While this topic was not covered on TSLA’s 1Q18 conference call last night (our analysis on this call will be published shortly), given Autopilot is among the main key drivers of TSLA’s current valuation, and the “Autopilot was found by the U.S. government to reduce crash rates by as much as 40%” line has been used by TSLA time-and-time again, we feel this development could prove more important than the company’s earnings conference call yesterday.