Infra Play #78: Tesla and the bet on real-world AI

With autonomous driving mostly a foregone conclusion, the next big frontier is humanoid robotics. Does Tesla have a path to becoming the most valuable company in the world?

Let’s preface this article with the obvious—Tesla and the rest of the companies associated with Musk do not represent any tech sales opportunities (besides selling to those organizations). Maybe xAI will have a small sales team at some point, but for the most part, these are not the places to look for your next tech sales opportunities.

This doesn’t change the fact that what Tesla, xAI, X, and even SpaceX are doing has a significant real-life impact, which will lead to significant downstream consequences. The activities of these organizations are disruptive to the dynamics of their target markets, but cumulatively, they are a bet on a fundamental transformation of how the world works.

This was blatantly obvious in the last earnings call for Tesla, which was “widely panned” by journalists as “ridiculous” because it barely mentioned anything about the actual cars being produced. For those who pay attention (particularly as outlined in my recent articles on NVIDIA and the AI strategy of the new U.S. administration), this was a wake-up call for how quickly we are accelerating toward real-world AI. The implications of this are... significant.

The key takeaway

For tech sales: Tesla is becoming the real-world AI company. If NVIDIA is building the computing hardware to power AI, Tesla is the company that is going to fundamentally change how our day-to-day lives look through autonomous driving and humanoid robots. It’s important for you to assess where you would fit in, if they are successful in their vision.

For investors: At this stage, the potential of “legacy” automotive as we know it is mostly exhausted. The long-term outlook for the industry is not particularly exciting, as we’ve seen by the slow decline of the German brands. As such, the future ahead for Tesla is not in making slightly better iterations of the same car but in picking up the tremendous amount of data and ML that they’ve built and creating the most important technology of our time, real-world AI. With autonomous driving mostly a foregone conclusion, the next big frontier is humanoid robotics. If they are able to execute on that vision, Tesla has a path to becoming the most valuable company in the world.

Cars, robots and energy

Elon Musk: And I’ve said this before, and I’ll stand by it. I see a path, I’m not saying it’s an easy path, but I see a path for Tesla being the most valuable company in the world by far, not even close.

Like, maybe several times more than, I mean, there is a path where Tesla is worth more than the next top five companies combined. There’s a path to that. I mean, I think it’s like an incredibly, just like a difficult path, but it is an achievable path. So -- and that is overwhelmingly due to autonomous vehicles and autonomous humanoid robots. So, our focus is actually building towards that. And that’s where we’re laying the ground.

Source: companiesmarketcap.com

The top 11 most valuable companies in the world are significantly ahead of everybody else. For Tesla to make a play for the #1 spot, even at current valuations we are talking about a 2.7x jump in valuation. For reference, the closest other automotive company in terms of valuation is Toyota ($242B market cap, 42nd spot in the chart).

So as far as automotive companies go, Tesla has been exceptionally successful, significantly outpacing any other player. For the company, however, to take the next leap forward, producing good cars alone is not going to make the difference.

Elon Musk: So, a car goes -- a passenger car typically has only about 10 hours of utility per week out of 168. A very small percentage. Once that car is autonomous, my rough estimate is that it is in use for at least a third of the hours of the week. So, call it 50, maybe 55 hours of the week.

And it can be useful both for cargo delivery and people delivery. So, even let’s say people are asleep, but you can deliver packages in the middle of the night or resupply restaurants or whatever the case may be, whatever people need at all hours of the day or night.

That same asset, the thing that these things that already exist with no incremental cost change, just a software update, now have five times or more the utility than they currently have. I think this will be the largest asset value increase in human history.

In the current state of how the world works, cars are often a vanity item rather than a productive asset. As great bets often go, you have to inverse the value proposition. What if cars become one of the most productive assets that we have? In my coverage of NVIDIA, we discussed how critical AI is in generating a significant amount of synthetic data for training the self-driving algorithms. The logical step for somebody of Musk’s ambition is to scale that effort with their own large data centers.