Tesla Faces a Robo-Taxi Revolution in China. Musk’s Ambitions Have a Tough Test.

Tesla is betting big on AI-trained robo-taxis. Its purpose-built two-seat Cybercab has no steering wheel or pedals. (Hans Lucas/AFP via Getty Images)

Key Points

Morgan Stanley projected that robo-taxis will reach 1% of China’s ride-hailing fleet, or roughly 46,000 cars, by 2028.
Chinese auto makers are investing in AI-trained robo-taxis and robots to help reignite growth amid overcapacity and falling profits.
Tesla CEO Elon Musk said he thinks Tesla will do a majority of all passenger miles on Earth in any country where it is allowed to operate freely.

Robo-taxis are going to be all over roads—in China.

Morgan Stanley projected in a recent report that robo-taxis will reach 1% of China’s ride-hailing fleet by 2028. That’s roughly 46,000 cars.

That also means there are roughly 4.6 million vehicles in ride-hailing services in China. That number for the U.S. is between one and two million. (There is a lot of overlap with Lyft and Uber Technologies drivers.)

One percent isn’t a lot, but it’s up from an estimated 10,000 today, provided by Baidu, WeRide, Pony.ai, and others. That’s probably double the number of cars in the U.S. robo-taxi fleets of Alphabet’s Waymo and Tesla . Morgan Stanley sees the fleet scaling to 1 million vehicles by 2035.

The report shows investors a couple of things. For starters, it’s one model of how robo-taxis might spread. Morgan is projecting average annual growth of roughly 55% for seven years. Fast growth. Still, at that point, robo-taxis would still be less than 1% of all personal vehicles.

The report also illustrates how Chinese car companies are essentially looking for robo-taxis to improve their businesses—just like Tesla. The Chinese car market is currently characterized by overcapacity, brutal price competition, and falling profits. Auto makers there have taken a Tesla-like approach, investing in AI-trained robo-taxis and robots to help reignite growth.

Eventually, Tesla will want part of the Chinese robo-taxi business. CEO Elon Musk wants a lot of it. “I think unless we are stopped by governments, which is certainly a possibility, if they’re trying to protect a domestic industry, I think Tesla will end up doing a majority of all passenger miles on Earth in any country where it is allowed to operate freely,” he said on Tesla’s third-quarter earnings conference call in October. “I feel confident about this prediction.”

In China, he will have to win the business from a lot of local providers that are trying to scale now.

Tesla stock was up 1.1% in early trading on Monday at $404.11, while S&P 500 and Dow Jones Industrial Average futures were both up about 0.5%. Stocks were rebounding from Friday’s brutal selloff that sent many AI-related stocks lower. Tesla stock lost 0.9% on Friday.

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

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