Reports that Tesla is placing more focus on the rollout of its autonomous Robotaxis than the production of low-cost/high-volume consumer vehicles is leading many analysts to downgrade their forecasts of the company’s future earnings.
The primary reason is that most still see Tesla as a regular vehicle manufacturer and correlate earnings directly with vehicle sales.
But the reality is that Tesla has long been something different – more of a seller of mobility than a seller of vehicles – offering revenue streams in subscriptions, credits and fast-charging. FSD and Robotics, if they roll out as planned, could be the crowning glory.
Tesla CEO Elon Musk has announced that the company’s Robotaxis will be unveiled on August 8, and many analysts may not be recognising just how quickly Tesla’s progress on autonomy is accelerating.
The company has over 99% of the world’s real-world driving data, thanks to its 5 million vehicles, each with 8 cameras soaking up billions of frames of road data every day.
Much of this data is being fed into Tesla’s ground-breaking in-house built neural net training supercomputer Dojo. As the global Tesla fleet grows, the data grows exponentially as does the capability of Tesla’s Full Self-Driving (FSD) software.
With that in mind, it’s actually more accurate to view Tesla as an advanced AI software company that’s developing cutting edge self-driving software at an exponential rate, and just happens to also be the world’s most advanced vehicle manufacturer.
Robotaxi launch completely inline with Tesla’s long-term strategy
In his Master Plan, Part Deux, which was published in July, 2016, Musk laid out the company’s long-term strategy regarding autonomy.
I wrote this 8 years ago https://t.co/r9GdXpUDe2
— Elon Musk (@elonmusk) April 6, 2024
“As the technology matures, all Tesla vehicles will have the hardware necessary to be fully self-driving with fail-operational capability, meaning that any given system in the car could break and your car will still drive itself safely,” Musk wrote.
“It is important to emphasize that refinement and validation of the software will take much longer than putting in place the cameras, radar, sonar and computing hardware.
“Even once the software is highly refined and far better than the average human driver, there will still be a significant time gap, varying widely by jurisdiction, before true self-driving is approved by regulators. We expect that worldwide regulatory approval will require something on the order of 6 billion miles (10 billion km).”
Last week Tesla passed 1 billion miles driven in FSD after 3.5 years of real-world testing and regular updates.
It took Tesla 3.5 years to hit 1 billion miles driven on FSD.
I predict Tesla will hit 2 billion FSD miles in the next 45-60 days. pic.twitter.com/pBe6VUJ8Ot
— Sawyer Merritt (@SawyerMerritt) April 6, 2024
Over the past two weeks, the online Tesla community has been abuzz with rave reviews of Tesla’s latest FSD software update (Version 12.3.3) suggesting Tesla’s engineers have made a significant breakthrough with the technology.
In addition to many beta version testers saying they are now experiencing zero interventions during long and complex city drives, other clues suggesting a breakthrough include Musk’s email to all North American employees saying FSD full demonstrations are now required as part of vehicle deliveries, and most of all, the announcement of the Robotaxi reveal.
In addition to this, two weeks ago Tesla announced it is now offering all North American compatible vehicles (over 2 million sold in NA since hardware 3 was included in mid 2019) now have access to a one month free trial of FSD.
All this points to a significant acceleration in FDS miles driven as literally millions more Tesla drivers experience the technology first hand. This will likely result in Tesla reaching the 6 billion mile threshold, mentioned in Musk’s 2016 Master Plan Part Deux, in a matter of months rather than years.
Once FSD miles driven exceeds the 6 billion mile mark, their will be overwhelming statistical data showing that vehicles using FSD are well over ten times safer than human drivers (perhaps it’s 100 times by that stage).
The evidence put to legislators in favour of full autonomy will be so compelling that some jurisdictions will inevitably move to allow it. From then on it will become a race for others to join as more people experience the benefits and demand it in their own areas.
Robotaxi transitions Tesla from a seller of vehicles to a seller of mobility
To date the major focus of Tesla has been to scale its production capacity. It’s done this by building massive factories in the world’s three largest vehicle markets China, Europe and the US.
With profit margin per vehicle sale being Tesla’s major revenue source, the strategy of focusing on increasing the production capacity of consumer/private vehicles as fast as possible has made perfect sense.
That revenue source, and those margins, are now under pressure from Chinese car makers, particularly BYD. And leading US auto analysts such as Morgan Stanley’s Adam Jonas wonders if talk that the rollout of the much anticipated Tesla 2 is now playing second fiddle to FSD is an admission.
“Has Elon Musk just admitted that China has won the battle for small EVs?” Jonas wrote in a note to analysts.
Jonas was one of the first to recognise the potential value of FSD to Tesla, although he remains skeptical, and says it could be decades away.
“The FSD [Full Self-Driving] bull case? We’re not so sure…” writes Jonas in a recent briefing note.
“Some investors have interpreted the timing of this story [Reuters article claiming Tesla is scrapping its low-cost vehicle] with excitement around the latest version of FSD and an earlier scaling up of a Tesla robotaxi business.”
“While we do believe Tesla has advantages around developing the computer vision/robotics technologies necessary to be dominant in autonomous driving, we believe a host of legal/regulatory issues will make this journey measured in decades rather than years.”
However, once autonomous driving software reaches a level where it becomes accepted (or required because human driving is so dangerous in comparison), and has the support of regulators and policy makers, Tesla’s business model will shift dramatically.
In 2019 Musk said Robotaxis could earn their owners $US30,000 ($A46,000) per year. In the US a Model 3 starts at $US42,990 before the government’s $7,500 purchase credits meaning once legislators catch up, a new Model 3 used as a Robotaxi could almost pay itself off in the first year.
Tesla’s 3rd generation platform is said to reduce cost per vehicle to below $US20,000 which would bring the payback period on a Robotaxi down to just 8 months.
Combine this with a million-mile battery and all of a sudden you have an asset that could generate around $US300,000 for its owner over ten years. This obviously means as a revenue generating asset, a Tesla Robotaxi is worth much more than than a new Model 3 sale price.
If a single Robotaxi costs Tesla ~$US20,000 to make but can earn $US300,000 over 10 years, why would Tesla sell them for less than $50,000?
Why would they sell them at all?
The much more likely scenario is that Tesla builds a massive fleet of Robotaxis to operate under the Tesla brand. Tesla has the capacity to make millions of them each year and with substantially lower running costs than fossil powered privately owned cars, most people will opt for a Transport as a Service (TAAS) subscription rather than forking out tens of thousands of dollars for a privately owned vehicle that’s only used for an hour each day.
In theory a Robotaxi could do the human transporting work of at least 10 privately owned vehicles each day (probably a lot more).
With battery packs that last at least 1.5 million km (around 7 times the lifespan of a fossil car) electrified Robotaxis and the vast majority of people opting for TAAS over private vehicle ownership, we could be about to witness the beginning of a monumental disruption to the 70 million unit per annum fossil car industry.
Daniel Bleakley is a clean technology researcher and advocate with a background in engineering and business. He has a strong interest in electric vehicles, renewable energy, manufacturing and public policy.