Massive growth opportunity for Tesla. Are you going to be part of it?
The future of Tesla is not in their vehicle business
Watching one of Dave Lee’s videos, which, by the way, is a total must for all Tesla investors and followers, made me think again about Tesla’s present and future business opportunities.
Dave Lee hosts a YouTube channel and podcast where he gives his opinions and hosts interviews about investing. in the last year, about 80% of his content is Tesla related and he has been very active since the Q4 earnings presentation and call.
He can always see a little bit further than most of us, and in this video, he is talking about how Tesla is working on a product roadmap that will open new markets to lead the company to a higher valuation and continuous growth.
As an overview, these markets or sectors would be:
- Electric vehicles (today)
- FSD and robotaxis (short term)
- Tesla’s humanoid robot and AI (long term)
He also explains how difficult is, for humans, to understand that these innovations always grow as an S curve instead of a typical straight line.
Exponential growth is a counterintuitive concept but it always comes with disrupting technologies. In the beginning, the growth is slow as the product is being adopted by a few people. At this time it is expensive and the benefits are still in the future.
Later, mass production brings costs down while more people start buying them and network effects show more benefits of adopting the new technology. At this point, adoption begins to grow very fast, as new customers buy in and the product or service it is replacing becomes obsolete.
When most of the addressable market already owns the product, growth starts declining until sales are only there to replace old and broken products. At this stage, either the company has found a new disruptive product to start the curve again, or growth slows until it stagnates.
With Tesla’s roadmap unveiled in the company’s Master Plans and updated in the last call, we can foresee the new products and services that will assure growth once EV adoption comes to maturity in the next decade.
For most people, this is Tesla’s only known business. We can already see that the company succeeded in ramping up production and the rate of adoption is increasing exponentially and will continue for at least the next 10 years until all vehicle sales are EVs. Then, growth will slow down but still, there will be millions of ICE cars that need to be replaced until they reach breakeven and the replacement rate steadies.
Tesla Model S has been available since 2012 but it is not until 2020 that we can see the beginning of the S curve and the exponential growth. Now this will last for at least 10 years while Tesla, some legacy automakers, and new companies such as Lucid, Rivian, or the Chinese Nio and Xpeng flood the market with new models that will be cheaper and better than ICE cars and environmentally friendly.
But at some point in the future, sales will start growing less and companies will start to compete in a crowded market and lower their margins to continue in business.
FSD and robotaxis
But Tesla is already working on their next idea on top of the vehicle’s one. This business will be even bigger and more profitable and will have a bigger addressable market as it will be the whole car and ride-hailing industry.
Tesla is developing the software needed to make vehicles autonomous. Not only your Tesla car but all cars. At the same time, they will use this software to create a self-driving fleet of taxis and even they will be able to use it in the road transport business with their Tesla Semi or others.
FSD has the potential to be a whole new source of income that will continue raising once EV adoption gets to maturity and the market is flooded with them. It will even cannibalize the car industry because once autonomy is solved, car sharing will be more popular and we will need fewer cars.
And finally, if Tesla rolls out their own robotaxi network with its own vehicles and FSD technology, the synergies between these technologies will give them a huge amount of profit and competitive advantage as none of the actual ride-hailing network companies build their own cars and most of them are not developing their own software.
Robotaxis could also play a big role in the future of energy distribution, which is part of Tesla’s business and its implications are yet unknown.
Tesla humanoid robot and AI
But the most profound revolution will come from this new project that was unveiled last year on AI day. Tesla is developing a humanoid robot managed by a variant of FSD that will be able to recognize its environment, learn, and take decisions. At first, it is aimed to replace labor where repetitive, dangerous, or boring tasks are performed, but in future iterations, it could replace most jobs that involve physical activity like handling stuff and carrying it.
We can guess that the first use for this robot will be in Tesla’s factories performing tasks that are now part of the actual workers’ assignments such as mounting parts.
The greatness of this new line of business is the huge addressable market it aims for: the whole labor market which is the base of our economy. If this robot can perform most physical jobs, there will be no more labor shortage.
And what happens with AI? A variant of FSD will be installed in the robot, but for most intellectual jobs, you don’t need a “body”. AI models trained in Tesla’s data centers (Dojo and future developments) will run as a service for non-physical jobs that don’t require the robot form to be offered. These will be all kinds of analysis, writing, calculations, etc jobs that account for a big cake of the labor market.