Yahoo Finance Elon Musk plots new direction after Tesla’s electric car crisis
Tesla investors have spent the last few months wondering if the car maker’s chief executive has his eye on the ball.
Elon Musk’s purchase of Twitter, his altercations with OpenAI and his frequent political proclamations have led to questions about the amount of attention the billionaire was giving to the world’s most valuable carmaker.
Calls for a full-time chief at Tesla have grown ever louder.
This weekend, Musk attempted to answer those concerns. He cited “very heavy Tesla obligations” as he scrapped a long-planned trip to India to meet Prime Minister Narendra Modi.
It is certainly not a time for distraction. Earlier this month, Tesla revealed that sales of its cars had fallen for the first time in four years. On Tuesday night, the company is expected to report a heavy drop in profits.
Last week it cut around a tenth of its global workforce, including some veteran executives.
Shares have fallen by more than 40pc so far this year, knocking Musk off his perch as the world’s richest man. Tesla briefly lost its status as the world’s best-selling manufacturer of electric cars to China’s BYD in January.
Shares fell as much as 5pc on Monday after a fresh round of price cuts from Tesla over the weekend as it battles competition.
Nor is the picture likely to improve soon. Demand for electric cars is stalling, and in some markets going into reverse.
This unexpected development is challenging the entire industry – but disproportionately hits “pure play” manufacturers like Tesla, which only make electric vehicles (EVs).
Musk, however, believes he has an ace up his sleeve. In recent months, Tesla’s chief has tried to reposition the company, pitching it as not simply another EV manufacturer but as a leader in self-driving technology.
“Success in this regard, in the long term, I think, has the potential to make Tesla the most valuable company in the world by far,” Musk told investors last October.
The billionaire’s ambition is to give motorists back the countless hours they currently spend behind the wheel, essentially turning cars into self-driving robotaxis. Passengers will be free to do what they please in his vision of the future.
Musk has been promising driverless cars for the best part of a decade. Since 2016, the company has advertised all of its vehicles as capable of driving themselves – as soon as software and regulations allow.
That same year, he predicted a Tesla car would soon be able to drive across the US without human intervention. Enthusiastic customers paid thousands to have the full self-driving (FSD) software installed on new cars, despite no timeline for it being available.
In 2019, Musk said Tesla would be making cars without steering wheels or pedals within two years. He promised that Tesla owners would imminently be able to allow their cars to operate as autonomous robotaxis.
“Consumers will demand in the future that people are not allowed to drive these two-tonne death machines,” he claimed.
Ambitious deadlines are par for the course with Musk. But there are signs that his self-driving ambitions are now getting meaningfully closer.
FSD can now be used on the roads in the US and Canada after years of beta testing and Musk is pushing hard for customers to adopt it. In March, Musk told employees that they must give customers a demo of the technology to show it off, calling it a “hard requirement”.
Tesla recently slashed the monthly cost of an FSD subscription from $199 to $99, and this weekend reduced the price drivers pay to buy it as a one-off from $12,000 to $8,000.
Tesla recently said that one billion miles had been driven using the software, a tenfold increase in the last year. “Most people still have no idea how crushingly good Tesla FSD will get,” Musk said in March.
The company still has a lot to prove, however.
“The gap between the reality of the technology and what Elon Musk says about it is – and will always be – huge,” says Jack Stilgoe of University College London, who researches driverless car systems.
FSD is “a very limited driver assistance system”, he says. “It is not about getting into your car and telling it to go from one place to another and falling asleep.”
Thousands of motorists in the US now have access to FSD but the technology requires humans to stay alert at all times, often because they have to step in when the vehicle makes a mistake (Musk himself was forced to stop his car cruising through a red light while livestreaming a demo last summer).
Meanwhile, thousands of Tesla owners outside of the US have bought the FSD package but have not been able to use the software because of regulatory constraints. US regulators have pushed Tesla to make a series of safety updates to the technology and its more basic cousin, Autopilot.
However, Stilgoe adds: “That’s not to say that [FSD] isn’t really interesting, good, beneficial technology that future Tesla customers might pay a lot for.”
If Tesla does have a lead in driverless technology, the potential benefits are huge. As a paid-for software upgrade, it has the potential to dramatically improve Tesla’s profits compared to the famously tight margins of the car making industry.
Renting cars out as autonomous taxis would also present a new line of business: Uber without the need to pay a driver.
Analysts at Deutsche Bank said last week that Tesla’s future now depends on “cracking the code on full driverless autonomy”, adding that this is a “significant technological, regulatory and operational challenge”.
On Tuesday night, Musk is likely to be questioned about reports that Tesla has suspended a long-awaited project to build a mass market $25,000 vehicle as it presses ahead with plans to develop a robotaxi with no steering wheel or pedals.
The robotaxi will be unveiled in August, although it may be several years until it makes it on to roads, in part because Tesla has no licence to operate fully driverless cars.
Musk has always liked to shoot for the moon and this futuristic driverless car might still be the best chance of turning Tesla around as Chinese EV makers catch up.
What is clear is something has to give. A further slump in Tesla’s share price could mean losing its status as the world’s most valuable car maker to Japan’s Toyota.
Backing Elon Musk has always been a gamble; this may be the biggest one to date.
