Tesla's $16.5 Billion AI Chip Order Is Not What You Think It Is.

The company is playing catch-up and failing.

Photo by Bram Van Oost on Unsplash

A few days ago, Musk proudly announced that Samsung’s mysterious $16.5 billion AI chip order was commissioned for Tesla and would be used to train their Full Self-Driving (FSD) AI. This self-important bragging might have impressed those deeply invested in the Tesla bubble, but for anyone actually paying attention, this was an admission of just how deranged Tesla’s self-driving push has become. It also proves that Musk isn’t doing anything to address the actual problems at Tesla. Let me explain.

This $16.5 billion deal is to supply AI-optimised chips to Tesla from 2026 to 2033. It doesn’t include construction costs, installation costs, energy costs, AI training costs, or maintenance costs — all of which are several times the cost of the chips themselves.What’s more, AI chips only have a lifespan of one to three years, given that these chips are pushed hard and often break under load.

So this means Tesla is actually planning on spending around $50 billion on AI over the next decade, or roughly $5 billion a year.

That is a gargantuan expenditure, but Tesla desperately needs it.

They have already spent well over $10 billion, possibly close to $20 billion, developing FSD. Yet, public data of FSD users (using the same hardware and software version as the Robotaxis) shows it travels an average of 444 miles between critical disengagements, when the driver needs to step in and stop illegal driving or an accident. However that data is a little skewed, as FSD customers are aware of its limitations and don’t use it in more challenging settings. Third-party tests, which don’t have this bias, show that the actual distance between critical engagements when using FSD as a full self-driving system is a mere 31 miles.

That is nowhere near safe enough for a driver assist system, let alone a system design, to be used fully autonomously.

For comparison, back in 2022, Waymo had spent around $10 billion developing its self-driving cars, yet its average distance between disengagements was 7,800 miles — which is 251 times better!