Tesla chief Elon Musk has given his clearest signal yet that the EV leader should be considered an AI and tech company rather than an automaker, as the firm's management put FSD and robotaxis front and centre of its Q1 earning's call.
Musk told analysts on Tesla's Q1 earnings call that "we should be thought of as an AI or robotics company — if you value Tesla as just like an auto company, fundamentally it is just the wrong framework".
"If somebody does not believe Tesla is going to solve autonomy, I think they should not be an investor in the company," he adds.
Tesla has long commanded a valuation like a technology company and far above most other automakers on the basis of future AI and software prospects, with RBC Capital analyst Tom Narayan even going so far as to suggest that a software licensing business could see Tesla stop making cars altogether.
But the firm's recent share price travails show that, for now, the markets clearly see a good deal of Tesla's value being derived from a solid base of conventional car sales. Tesla saw its stock tumble over the last fortnight as the status of its next-generation EV was thrown into doubt, as investors considered the prospect of auto sales growth at the company drying up.
Shares then rebounded by 13pc after management promised a vehicle line-up refresh as early as 2025, suggesting that Musk and co. cannot be over-eager to relegate the car business — at least not until FSD is a more proven commodity.
But, even as Tesla recommitted to developing a new passenger car range, Musk made his strongest statement to-date about where he sees the future of the company.
"The way to think of Tesla is almost entirely in terms of solving autonomy and being able to turn on that autonomy for a gigantic fleet," he says.
The CEO envisages a use case in which "Tesla will operate the fleet" which will eventually be up to "tens of millions" of robotaxis in size, many of which will be owned by Tesla itself. Musk also mentioned for the first time a plan to use robotaxis' onboard computers in their non-driving time to supplement Tesla's computing power for further training of the FSD software.
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OEM licensing partner in the crosshairs
Leaning into AI will open more doors for Tesla, as management has revealed that a "major automaker" is in discussions about licensing FSD. Musk also predicts Tesla to have a captive market of OEM customers across the auto industry.
"The people do not understand all cars will need to be smart cars, or nobody would buy [one]. Once that becomes obvious, I think licensing becomes not optional," Musk says.
But the CEO says that Tesla will maintain its competitive advantage over OEMs that license their autonomy software from them, not least because Musk says he expects any competitor to take at least three years to bring FSD to scale in a vehicle.
But for this, Tesla will have to prove that its FSD is the undisputed leading technology for autonomy, over competing tech like Lidar, something it has not yet done and of which analyst consensus is sceptical.
The question facing Tesla in this scenario is, given that at its peak market cap the company was valued on the basis both of leading EV sales and future AI prospects, what level of propagation and market dominance with its software licensing would be needed to compensate for the relegation — or potential end — of the automaking business.
Musk's words about Tesla's future in software suggest that the new EV line-up pared back in ambition could be little more than a stopgap measure. That would be a big call, albeit, if Tesla becomes dominant as THE autonomous driving (AD) software provider and if AD becomes as mainstream as quickly as musk believes, not necessarily a bad one. Two big ifs, though.
Ciaran has written about finance, politics and culture. He is passionate about e-mobility and what it means for our way of life.
Ciaran has a Masters in Ancient Philosophy from Oxford University.
