Tesla (TSLA 12.06%) has held a bright spotlight over the years for its ambitious plans involving artificial intelligence (AI). But AI is such a new and emerging technology that nailing down the specifics of how AI impacts Tesla's business is tricky.
AI doesn't impact Tesla's financials much today; the company's electric vehicle sales currently pay the bills. But over the next decade and beyond, the company's plans for the Robotaxi and Tesla Bot fleets will lean heavily on the AI assets it's developing today.
Here are three reasons AI could become Tesla's biggest competitive advantage.
1. Elon Musk's persistence
Artificial intelligence has long been a big part of Tesla CEO Elon Musk's career. He started Neuralink in 2016, a company designing chips that would integrate AI with the human brain. Under his direction, Tesla spent years working on autonomous driving, aiming for an eventual Robotaxi business where Tesla vehicles could operate without human intervention, generating revenue for drivers as part of an autonomous taxi service. A much newer project, Tesla Bot, could one day stand in for manual labor, a massive potential market opportunity.
There's no guarantee Tesla will succeed at either, but it takes bold direction from a company's leadership to swing for the fences. Ford recently backed out of a push to operate autonomous vehicles without driver input, instead leaning into its BlueCruise technology, a level-two self-driving feature in its cars that can perform a limited number of actions.
Full self-driving (FSD) is an enormous undertaking that few companies are pursuing as eagerly as Tesla. On the other hand, if Tesla succeeds, it could be a colossal moat against EV competitors, and it will be mainly due to Musk's push to pursue FSD.
2. A culture that draws talent
The software to power these applications is very complex, which makes talented employees a valuable resource. Regardless of how people feel about Tesla's highly public CEO, he's created an environment at Tesla that attracts blue-chip employees.
According to employer branding specialist Universum, Tesla ranks highly in employer rankings among U.S. engineering and computer science workers. It comes in at second for engineering and fifth for computer science, ranking among tech's biggest names and organizations, including NASA. In other words, employees view Tesla as a top-tier landing spot.
It's one thing for a company to outline a goal and another to achieve it. However, attracting top-tier minds to build such complicated software arguably gives Tesla a leg up on its competitors.
3. AI requires data, and Tesla has loads of it
Tesla's established fleet is an underrated aspect of its AI program. Tesla has more vehicles on the road than any other EV brand by a country mile, and it collects data on every vehicle daily. It feeds this data into its neural network, using the input to build models and train its algorithms over time. Tesla surpassed 35 million FSD miles driven by its fleet last summer.
Some competitors are taking different approaches, including General Motors, a majority owner of Cruise, a company that launched an autonomous taxi service with the Chevy Bolt in San Francisco (as well as Phoenix and Austin). Cruise combines radar, cameras, and Lidar sensors, while Tesla leans more heavily on sensors and cameras. Cruise surpassed 1 million driver-less miles in early 2023, a much smaller sample than Tesla.
It's still just getting off the ground and must be expanded upon, but Cruise has established itself as a competitor (and the potential leader) in building an autonomous fleet. General Motors believes Cruise could do $50 billion in annual revenue by 2030.
This is a great reminder that:
Success isn't guaranteed
Investors must remember that Tesla hasn't succeeded yet, and Elon Musk has given estimated dates for specific milestones, only to miss them. A company like General Motors could beat Tesla to the punch (though GM's EV fleet is peanuts compared to Tesla's).
Tesla has established itself as a successful EV company, but is a potentially riskier investment today. Tesla's recent price cuts and Musk's comments on Q1 earnings about dropping margins to retrieve them through autonomy later put pressure on Musk and the company to deliver FSD and Robotaxi results.
It's hard to call AI Tesla's most significant competitive advantage today, but it could be in the future. Telsa's betting big on its AI success over the coming years, and the potential payout could elevate the company to new heights. Investors will see where the chips fall.
