Uber vs. Tesla: Which Autonomous Vehicle Stock is a Better Buy?

Uber (UBER) and Tesla (TSLA) are two giants in the automotive industry. While mega-cap Tesla is the world’s largest electric vehicle (EV) manufacturer, Uber dominates the global ride-hailing market. 

The two companies are investing heavily to benefit from a first-mover advantage in the autonomous vehicle (AV) market, making them top investment options right now. Let’s see which autonomous vehicle stock is a better buy. 

Cathie Wood Forecasts the Robotaxi Market at $10 Trillion

Tesla’s autonomous vehicle concept, the Robotaxi, is set to debut in an Oct. 10 event. Tesla CEO Elon Musk has described plans to create a fleet of self-driving vehicles to gain traction in multiple end markets, such as logistics, ride-hailing, car rentals, and food delivery, and asserted on the most recent earnings call that vehicle autonomy was key to the stock's valuation.

Cathie Wood, the CEO of Ark Invest and one of the most widely followed investors on Wall Street, expects the Robotaxi to be a $10 trillion opportunity for Tesla. While that estimate might well be overly optimistic, companies that gain a strong foothold in this rapidly addressable market should help deliver outsized gains to long-term shareholders. 

Notably, Tesla will have to wrestle with competition from companies such as Alphabet (GOOGL) and General Motors (GM), both of which are now partnered with Uber on separate AV initiatives. 

Last week, Alphabet’s self-driving car division, Waymo, claimed it had doubled the number of paid rides to 100,000 per week in the past three months as it expanded services into new areas. Moreover, Alphabet stated it will invest $5 billion in Waymo in the near term to fuel its growth plans. 

Significantly, Uber is partnered with Waymo on autonomous ride-hailing and food delivery in Phoenix, and earlier this month announced an international partnership with Tesla's key rival BYD (BYDDY) that extends to autonomous capabilities. 

Most recently, Uber is looking to help GM burnish the credentials of its Cruise division by adding the robotaxis as a ride-hailing option in certain markets. 

Can Tesla Stock Stage a Comeback?

Tesla (TSLA) is the most valuable automaker in the world, valued at $667 billion by market cap. However, in the last three years, it has trailed the broader markets as inflation and interest rate hikes pressured the company to lower vehicle prices in an effort to spur consumer demand. 

Tesla’s free cash flow reached a record high of $6.45 billion in 2021, while it reported a free cash outflow of $744 million over the last 12 months. Its gross margins in Q2 of 2024 fell to a five-year low of 14.6%, below consensus estimates of 16.3%. 

Today, Tesla stock trades 49.5% below all-time highs and is priced at 91.8x forward earnings, which is steep, given its decline in profit margins. 

Out of the 33 analysts covering TSLA stock, eight recommend “strong buy,” one recommends “moderate buy,” 17 recommend “hold,” and seven recommend “strong sell,” for a consensus rating of “hold.” The average 12-month target price for TSLA is $198.29, about 3.7% lower than the current trading price. 

Is Uber Stock a Good Buy?

With operations in 10,000 cities and 70 countries, Uber (UBER) ended Q2 of 2024 with $40 billion in gross bookings, an increase of 19% year over year. The total number of trips in Q2 rose by 21% to 2.8 billion, while sales grew by 16% to $10.7 billion, beating estimates by over $100 million. Freight revenue was flat, while its mobility and delivery business segments grew by double digits. 

The number of monthly active consumers on Uber rose by 14% to 156 million, allowing the company to increase ad sales by $1 billion in Q2. 

With $6.3 billion in cash, $1 billion in quarterly net income, and $1.7 billion in free cash flow, Uber is well-capitalized and benefits from economies of scale. Its steady free cash flow growth allows Uber to invest in technologies such as self-driving and artificial intelligence (AI). Uber also expanded its food delivery business, and announced a strategic partnership with Instacart (CART). 

Wall Street expects Uber to increase adjusted earnings from $0.81 per share in 2023 to $2.22 per share in 2025. Given its growth forecasts, Uber stock is reasonably valued at 32.7x forward earnings. 

Out of the 41 analysts covering UBER stock, 35 recommend “strong buy,” three recommend “moderate buy,” and three recommend “hold,” for an average rating of “strong buy.” The average 12-month target price for UBER stock is $85.97, nearly 20% higher than the current trading price.