A big bet on autonomous driving, coupled with a landmark deal with the Chinese government, may get Tesla back on track
During his last earnings call this week, Elon Musk, first and foremost, looked like a guy on the ropes.
Many of Musk’s injuries are arguably self-inflicted, and the distractions of his social media mishaps have led him to forget his most valuable asset: Tesla, which is also the source of money for his other projects. To cite some surprising examples of unforced errors:
Today, we have the spectacle of an executive leader whose end result depends on the generosity of government that the Biden administration habitually twists. At the same time, we are witnessing a president who has staked his candidacy to revitalize America’s green technology, carefully ignoring the demands of the U. S. government.
FREMONT, CALIFORNIA – APRIL 20: In an aerial view, Tesla cars are parked in a parking lot at the Tesla factory on April 20, 2022 in Fremont, California. Tesla reported first-quarter earnings that far exceeded analysts’ expectations, with profit of $18. 76 billion, versus $17. 8 billion expected. (Photo via Justin Sullivan/Getty Images)
Another explanation for Tesla’s wobbles is that the company is cracking under the pressure of overwhelming Chinese competition. The threat is that lower-cost, higher-quality electric cars will sweep away not only Tesla, but the entire U. S. auto industry, such as internal combustion engines. Slowly follow the trail of horse-drawn carriages.
In a recent blog, Noah Smith believes Tesla has fallen victim to a family cycle. In the scenarios he describes, multinational corporations are lured to China with the prospect of massive prospective markets, but then their critical generation is stripped of mandatory joint ventures. commercial espionage and acquisitions. Chinese competition first uses its merit to drive multinationals out of China and then supplants them by flooding global markets.
“Seeing a champion of American industry and innovation fall to Chinese rivals who temporarily succeed him does not make any American happy. And the same techniques that China used to defeat Tesla will be used to defeat any other American competitor,” Smith writes.
While Smith’s research arguably holds true for express industries such as high-speed rail and wind turbines, it’s worth noting that Tesla, in many ways, has been an exception to this rule. Musk has secured the right to open Tesla’s Gigafactory. in Shanghai without any joint venture partners, a first in China’s automotive industry.
Tesla has introduced a series of brutal price cuts that are expected to reduce the number of Chinese EV makers to a handful, down from the current two hundred. And while China’s BYD eclipsed Tesla in terms of the number of global EV shipments in the fourth quarter of 2023, Tesla regained the more sensible spot in the first quarter of 2024 amid an overall slowdown in demand.
That’s not to say that the demanding situations Tesla faces are formidable. In 2023, the Chinese bought 8 million plug-in cars, compared to just 1. 2 million in the United States. In April, electric and hybrid cars accounted for more than a share of all new cars sold in the People’s Republic of China. The driving force behind this transition is that electric vehicles have become particularly less expensive than equivalent internal combustion models: BYD’s sleek Seagull EV is touted for just $9,700 in China and is expected to sell for $20,000 in Brazil.
Given the immense expanse of China’s domestic market and the determination of well-funded competition to deal with losses as the industry evolves, Musk would have arguably identified that Tesla is unlikely to win the race to the bottom. Another strategy is needed.
While Tesla said on its conference call that it is accelerating its efforts to introduce a lower-cost vehicle, Control has remained tight-lipped about the details. What would the car be called? How much would it cost?What were the key specs?” I think I said everything we need to say about it,” Musk responded to an analyst’s question after saying virtually nothing.
What Elon was looking for was to talk in detail about the arrival of fully autonomous driving, the control of which he said on the horizon and would be revealed with the launch of Tesla’s “robottaxi” on August 8, 2024.
Musk has been discussing since 2019 the option of turning Tesla cars into autonomous Ubers capable of generating a passive source of income for their owners. But now he’s put all his chips on the table. “If someone doesn’t, Tesla will fix the range,” he said, almost bold institutions obsessed with EV market share and margins to sell Tesla’s shares.
BEIJING, CHINA – OCTOBER 23: (CHINA OUT) Elon Musk, chairman, CEO and product architect of Tesla, Array. . Motors is heading to a press conference to claim that Tesla Motors is rolling out the v7. 0 formula in China on a limited basis for its Model S, which will enable self-driving features like Autosteer for a select organization of beta testers on October 23, 2015 in Beijing, China. The v7. 0 formula includes Autosteer, a new autopilot feature. Although it is not fully autonomous driving, the driver must hold the steering wheel and be aware of road situations and surrounding traffic when using the Autosteer. When set to the new Autosteer mode, the graphics on the driver’s display will show the trajectory Model S is taking. the existing speed limit, and involves whether a car is in front of the Tesla. (Photo via Visual China Group via Getty Images/Visual China Group via Getty Images)
In this updated edition of Tesla’s investment thesis, autonomy rather than electrification will become the long-term determinant of the automotive industry, leading all major companies to license Tesla’s autonomous AI software or face extinction. If you don’t have that in your car, no one’s going to need your car. . . All cars will become smart cars, or no one will buy them,” Musk prophesied.
This long-term vision has several benefits from Elon Musk’s point of view.
First, as an “AI company,” Wall Street will most likely assign Tesla a much higher level than it does as a manufacturer of electric vehicles, solar panels, and batteries.
Second, putting AI at the center of the strategy will likely make Musk more indispensable to Tesla’s future and worthy of a juicy award of new shares recently subject to shareholder approval.
More importantly, if autonomous driving does indeed become the long-term of the auto industry, Chinese players will most likely be permanently barred from promoting in the United States, Europe, and other safety-sensitive markets. No Western government will be comfortable with the Chinese. algorithms that constantly circulate on highways and roads and record the videos, GPS and personal behavior of its citizens.
Readers of Walter Isaacson’s biography will recognize that Musk has made a career out of running his companies to the breaking point of the crisis and then making a dizzying return to safety. Possibly he would have done it again if, in spite of everything, he managed to make his autonomy certain, which is not a simple technical task.