What Is Going On With Tesla?!
What Is Going On With Tesla?!
It's like Musk wants to destroy Tesla.
It seems Musk has finally had a breakdown. I mean, can you blame him? So far this year, Tesla has lost a third of its value as sales fall to Earth faster than a Starship rocket, the Cybertruck launch is going terribly, Musk has had to fire 10% of Tesla’s workforce to combat shrinking profits, and Tesla’s main global rival BYD now sells more EVs than Tesla and has a higher profit margin! How has Musk reacted to these hard times? He has almost entirely scrapped the upcoming affordable Model 2 in favour of developing robotaxis, pissing off nearly every single investor Tesla has thanks to growing scepticism in Tesla’s statistically dangerous FSD (Full Self Driving). He then went on an “Apprentice” style firing spree, eliminating some of Tesla’s core talent. Rebecca Tinucci, senior director of the electric vehicle maker charging infrastructure; Daniel Ho, head of the new vehicles program; Rohan Patel, head of Tesla’s public policy team; and Drew Baglino, head of battery development, were all recently fired; every single one of them had been with the company for many years and were crucial for some of Tesla’s biggest breakthroughs. Musk didn’t just fire these executives; he has fired and disbanded the entire 500-member supercharger team, the entire new vehicle program team, and the entire public policy team! So, what is going on? Why is Musk making these obviously disastrous decisions? Well, I think I’ve figured it out. Let me explain.
To get to the bottom of this, we need to rewind the clock a little. Once upon a time, Tesla was the most profitable EV maker in the world! Back in 2022, its profit margin peaked at over 30%. At this point, Tesla’s direct rivals, such as the Ioniq 5, ID4 and the Polestar 2, were still trying to establish themselves. They were more expensive and had lower specs than Teslas. Tesla’s production lines were simply more mature and scaled, giving them a gargantuan cost advantage. But since then, these rivals have scaled their production, lowered their costs, and increased their specs, and now, some of them are cheaper and have better specs than Teslas. This, on top of the EV price war, squeezed Tesla. By the end of 2023, Tesla’s profit margin had fallen to 17.6%, and then, by the first quarter of 2024, it had dropped even further to a dismal 16.4%. You might think that Tesla’s main competitors, like BYD and Hyundai, are having just as hard a time keeping up with Tesla’s price cuts, but you’d be wrong. BYD recently set sales and profit records, meaning it now sells more cars and makes considerably more profit per car than Tesla. It’s a similar story for Hyundai, as their EV sales grew 42% in 2023, and those EVs were more profitable than some of Tesla’s models.
It wasn’t supposed to be like this. Tesla’s 4680 battery was supposed to have all the specs and costs promised back in 2020 by now and be manufactured at full scale. This would have cut thousands of dollars off production costs for each car while increasing range and dramatically speeding up charge time. Sadly, this hasn’t happened, as Musk decided to develop unproven technology (dry coating) rather than use proven methods to achieve these results (800v architecture, LFP and prismatic cells), and development has been painfully slow. As such, Tesla no longer has a battery advantage and is arguably on the back foot compared to many rivals.
I also suspect this is why Tesla has scrapped its upcoming Model 2 for a robotaxi based on the same platform. You see, if the 4680 battery had gone to plan, this $25,000 EV could have had specs far ahead of any EV at this price point. Instead, it seems Tesla is having to turn to BYD to use their far cheaper Blade Battery for the Model 2. This means its specs will actually be worse than EVs at this price point, like the BYD Dolphin, MG MG4 and VW ID2. But if you sell this EV as a robotaxi service, you can negate this entire problem by competing in a different market.
That is, if Tesla can actually offer a fully autonomous robotaxi.
You see, Musk also wanted to sell FSD as a true self-driving feature by now, but has yet to be able to. Why? Well, Musk moved the system to camera-only environmental sensors back in 2021, rendering the self-driving AI inherently less safe (no redundant sensors) and significantly slowing down development, as this lack of additional sensors made the AI far more complex. In fact, this move made FSD so unsafe that some analysis has found it causes 10 times more fatalities per mile driven than human drivers alone! As such, FSD is still stuck as a level 2 autonomous system, meaning the driver has to pay attention the entire time and might never be able to achieve proper self-driving, thanks to this inherent flaw. Musk planned to sell FSD as an expensive service to Tesla customers, which could have added billions to their yearly revenue. But FSD is such a lousy product that Musk recently had to cut its price in half to get more customers to buy it! Considering that Tesla has piled tens of billions of dollars into developing FSD so far, this price slash is a huge blow not only to Tesla’s revenue but also to its entire business plan.
This is why Musk is acting so erratic. His entire master plan for Tesla, I.e. to develop industry-leading batteries, the first fully autonomous vehicles and affordable high-spec EVs to dominate the entire automotive industry, has completely fallen apart. Not only are they no longer leaders in any of these points, but they don’t have a viable path forward to achieve any of these goals in the near future. Both the 4680 and FSD require complete reworking, as the foundational parts of these projects (dry coating & lack of sensors) are deeply flawed.
So what does Musk do?
Well, I think he has changed Tesla’s entire business model, leading to these erratic decisions.
As I said, it’s pretty apparent that scrapping the Model 2 for a Model 2-based robotaxi is a way to mitigate its massive disadvantage in the market. Moreover, having fully fledged self-driving in Tesla’s other models could also instantly solve their slumping sales and shrinking profit margins. As such, I think Tesla is abandoning the idea of new models and battery development and purely focusing on self-driving. However, this switch-up can only work if Tesla can actually offer a fully autonomous vehicle, which they are still miles away from. Musk has also publicly said they need to train their self-driving AI on significantly more data to get it close to this. Training an AI on such vast and complex datasets takes an insane amount of computational power, energy and, more importantly, a colossal amount of cash.
In other words, if Tesla wants to solve its current crisis with self-driving, it has to spend billions upon billions of dollars on AI development, all during a period where profits and company value (which can be used to secure huge loans) are rapidly disappearing. So, I think Musk is firing this crucial talent and kneecapping these previously foundational parts of its current business to ease up the funds to bet the farm on self-driving.
To some of you, that might sound like a good thing. However, I’m not convinced. As I said, FSD has a vast Achilles heel with its lack of a proper suite of sensors, but not only that, there is no guarantee that simply shoving more data into the AI will make it good enough. I have covered this before, but AI is reaching a point of diminishing returns, so Tesla may never be able to create a safe, fully autonomous car with its current approach. I’m more than happy to be proven wrong, but I can’t help but feel like this is the beginning of the end for Tesla.
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Sources: FT, Daily Mail, Electrive, The Driven, Planet Earth & Beyond, Planet Earth & Beyond, Planet Earth & Beyond, Planet Earth & Beyond, Planet Earth & Beyond