Elon Musk's decision to greenlight a robotaxi instead of an affordable electric car could see the company lose the lead.
Last week, Musk was reported to be rallying behind a robotaxi, the kind of impossible project that has characterized his first decade at the helm of the company. There's an argument that the company got where it is today by betting big, then delivering on enough of its promises to convince shareholders and generate significant positive cash flows. The problem is that in the early days, there was everything and nothing to lose. The entire company could have collapsed, but there was also less at stake.
Today, Tesla is no longer the daring startup. It generated nearly $100 billion in revenue last year and posted net profits of $15 billion, the kind that would prompt other automakers to reward shareholders with larger dividends. It is a global manufacturer that produces hundreds of thousands of cars every quarter, the type of operation where success is measured by continuous improvement in productivity and process indicators.
Tesla was reportedly on the verge of building a $25,000 electric car. In January, Musk confirmed that the company would begin building a next-generation vehicle at its Texas factory in the second half of 2025. Suppliers have been asked to bid on parts contracts, Reuters reported, with weekly production volume starting at 10,000 vehicles per week. Given the poor sales of the company's current product line, this would have been a welcome shot in the arm.
A cheap electric vehicle would have dramatically increased Tesla's total addressable market by significantly lowering its average selling price in the United States, which currently stands at about $47,000. It would also have given the company a product that would hold its ground in the face of the expected onslaught of cheap Chinese electric cars.
But that would also have meant building a production line from scratch, which is what the company last did on a large scale with the Model 3. By all accounts, that wasn't a pleasant experience.
But building a robotaxi. Now that sounds like fun.
Musk has long been fascinated by this concept. Four years ago, he said that such a car would be able to earn its owner up to $30,000 a year, because it transports passengers back and forth. Musk reportedly told biographer Walter Isaacson that it would be so popular that “there's no amount we can build that will be enough.”
The problem is that Tesla has been trying to perfect autonomous hardware and software for a while, and doesn't seem to be any closer to delivering a Level 5 capable vehicle, which doesn't require any human intervention. Despite years of operation, Autopilot remains a Level 2 system, meaning it requires human attention at all times. The same applies to full self-driving. (In fact, the company recently started using the term “moderated” when referring to the software suite.) Although artificial intelligence has been advancing rapidly recently, is it moving fast enough to provide Tesla with a successful product in the next few years?
Given Musk's desire to pursue exploratory projects, the logical path would be to create a skunkworks company within Tesla or create a division focused entirely on bringing a robotaxi to market. The latter is unlikely to happen because much of Musk's wealth is tied up in Tesla stock, and he probably doesn't trust anyone else to run the company when that much money is at stake. The former has more of a chance, but Musk also likes to appear very involved in everything at Tesla. He rejected the idea of ”just running” a skunkworks company.
It's something perhaps Tesla's board of directors should consider. And maybe they are. But many reports also made clear the close connection between this council and Musk. They don't seem to disagree on much, and this could cost Tesla its lead.
