Image by Amnesty International
The bullish case for TSLA stock among many is the solution to full self-driving. The dream is cars running on autopilot, like a taxi but without a driver. If it were cheap enough, it would remove the need for many people to own cars.
It's certainly been Elon Musk's dream for a decade. Unfortunately, he over-promised so many times that it became something of a meme.
“We will be demonstrating our purpose-built robotaxi or Cybercab in August,” Elon Musk said in the most recent earnings call. I doubt this will just be a car with comfortable seats and no steering wheel.
But what if he actually delivered?
If so, I'm sure TSLA shares will rise after the unveiling event scheduled for August 8th.
TSLA Stock Daily
I also think it will be a fleeting victory. A strong argument in TSLA's favor was that collecting large amounts of data from real-world cars would help them build a self-driving system via some sort of brute force method. I believe we have reached the limits of this approach.
Instead, Tesla focused on artificial intelligence technologies.
There's evidence in the latest earnings call, where Musk revealed this:
We're also continuing to expand our AI training capacity in the first quarter, sequentially more than doubling our training compute… We've got 35,000 H100 computers or GPUs installed and running, which means they're already running. GPU is the wrong word, they need a new word. I always feel like masturbating when I say GPU because it's not. GPU stands for – G stands for graphics. Roughly 35,000 H100S are active, and we expect there to be 85,000 or so by the end of this year in training, just for training. We make sure we are as effective as possible in our training. It's not just about the number of H100's, it's about how efficiently you can use them.
It's a dead giveaway that Tesla is using new technology to solve the self-driving problem. I hope it works (despite doubts about the long regulatory approval process).
The problem is that if Tesla solves the FSD problem using AI, it won't be the last to do so. Everyone will be right behind them. This technology is something Tesla has just been focusing on, so other automakers will only need to get 85,000 H100 chips and use the same technologies, which is no secret.
There is no moat in six months' progress in automotive technology. Yes, there will be an explosion in $99/month FSD sales and prices may rise again, but will you still be a loyal customer when Hyundai offers equal software at $19.99/month? If so, it will not maintain a more durable feature over the long term than an ABS or four-wheel drive system.
Yes, they have more data but with reinforcement learning, the size of the dataset is not that important, it is more about the quality. Other automakers are also collecting data. In an industry where the refresh cycle is +5 years, being in first place is not valuable, and certainly not valuable enough to justify a 10x higher multiple on TSLA stock.
So, while I certainly won't be fazed by any sort of hack announcement, I doubt the enthusiasm will last a year. Moreover, as Morgan Stanley wrote today, “China has already won the battle for global EV supremacy.”
However, there is an area where I believe Tesla can build a lasting advantage that could push the stock much higher. I will write more about that in a future article.