Elon Musk is focused on the new mission: turning his carmaker into the world’s most valuable company.
The road to get there? Autonomous driving technology and robots.
It’s no secret Tesla is going through an early midlife crisis. A combination of Musk’s divisive Washington antics and an ageing product line-up is shifting the needle for the EV maker from cool to uncool.
Its sales around the world are sliding (except in Turkey, Switzerland and Austria) while competition in China – one of its key markets – is brutal.
Chinese makers such as the Warren Buffett-backed BYD or Lei Jun’s Xiaomi are packed to the gills with cutting-edge tech and tricks to extend battery range.
Their new models and pricing war make Tesla’s line-up appear closer to a late-model Toyota than the spaceship it once was.
Adding to the blow, BYD this year overtook Tesla to become the biggest global EV maker by revenue.
After a leave of absence Musk recently said he ended his involvement in the controversial Department of Government Efficiency and was committing more time to running Tesla. Then he had a very public and bitter fallout with Trump.
Musk is promising a new low-cost version of Tesla’s best-selling Model Y later this year. The carmaker recently made some overhauls to the existing models.
Tesla’s second-quarter numbers brought to light the pressures the carmaker is facing.
June quarter earnings slid 16 per cent from the same time last year, while deliveries were down a worrying 13.5 per cent.
This followed an equally ordinary first quarter where earnings were off 17 per cent, and another double-digit fall in deliveries.
Things are expected to get worse before they get better, too.
Musk’s now former “First Buddy” Trump is ending EV subsidies in coming months, while parts of Europe such as Germany and France are winding back incentives. Given its large market share, Tesla has been a big beneficiary.
On an investor call this week, Musk warned of a rough period ahead. This triggered a near 5 per cent drop in after-hours trading.
Unlike recent calls, Musk didn’t discuss Trump.
As far as Musk is concerned, making physical cars will become secondary to the autonomous driving software Tesla is developing. The autonomous tech will also be used for robot technology Tesla is building.
In recent months, it rolled out its driverless RoboTaxi in Tesla’s hometown of Austin, Texas, and is pushing this into other US markets.
Google’s Waymo already had the jump on Tesla and operates in several US cities, including LA and San Francisco.
Musk reckons autonomous taxi services will be available to “half the population of the US by the end of the year”.
This assumes a lot of state-based regulators weighing up safety issues move at the pace of Musk.
At the same time, he is attempting to get RoboTaxi into Europe, but the regulatory approval is slow-going – that’s behind the “Kafkaesque” jab.
Musk argues the direction of travel from physical carmaking to driverless technology is linear.
“We need the physical product, without which you cannot have autonomy,” he said.
“But, once you have a physical product, you need the autonomy, this is what amplifies the value to stratospheric levels.”
The question is whether investors have Musk’s same conviction that autonomous technology will deliver one of the world’s most valuable companies.
Although Tesla’s shares have fallen nearly 20 per cent so far this year, much of the valuation is still a bet on the arrival of the long-promised AI capabilities.
If Tesla was valued as just another carmaker, its shares would be much lower. However, Musk has been long on promises and next year the rubber hits the road.
The latest quarterly numbers show a collapse in free cashflow given the investment spend around driverless technology.
Musk conceded that in the near term, Tesla will have to start tapping its vast holdings, or $US37bn ($56bn), of cash sitting on its balance sheet.
But, investors will only tolerate that for so long.
There’s no certainty over how quickly autonomous taxis can replace the declining cashflows coming from its carmaking business.
Limited versions of the autonomous tech are already available in the Tesla line-up, but the company remains hampered by regulators.
Rival BYD is delivering its own “God’s Eye” tech, while Google hopes to licence its technology. Musk contends Tesla is far superior to Google in “real world AI”.
Returns from robots are even more distant.
Musk promised to start tooling up on the long-promised production of robots in coming months, and ramp-up will come from next year.
Between bets on driverless taxis and robots, Musk concedes there’s a lot of execution that needs to take place “between here and there”.
“Provided we execute very well, I think Tesla has a shot of being the most valuable company in the world,” he said.
johnstone@theaustralian.com.au
More Coverage
How CommSec became CBA’s billion-dollar cash cow
It was the 1990s and the internet and blockbuster IPOs were starting to converge. CommSec was just a few lines on a boardroom pitch and it almost didn’t happen.
The ‘assassins’ who wanted Cannon-Brookes to be Atlassian’s sole CEO
The irreparable personal and professional falling out between Mike Cannon-Brookes and Scott Farquhar has reshaped Atlassian. But Farquhar’s original exit plan have seen his former best man and business partner stepping down with him.
The world’s richest man has toned down the antagonism, and apart from labelling the EU as “Kafkaesque” has kept out of politics and his recent blow-up with Donald Trump.