During Tesla's (TSLA 1.53%) first-quarter earnings call last week, Elon Musk made one thing abundantly clear: Tesla is an artificial intelligence (AI) and robotics company.
Naturally, following these remarks Musk was bombarded with questions about Tesla's progress in autonomous driving -- a pillar of the company's AI roadmap.
He hinted about the company's intentions to license its full self driving (FSD) technology to other vehicle manufacturers, stating that Tesla is in conversations with "one major automaker."
Let's break down who I think could be exploring licensing FSD, and why I see Tesla as the better buy.
NASDAQ: TSLA
Key Data Points
Who could Tesla be negotiating with?
While there are a number of companies pursuing self-driving vehicles, the more mainstream players in the space include Alphabet's Waymo, Cruise, and of course, Tesla.
During its early days, Cruise attracted a number of high-profile investors including SoftBank, Microsoft, and General Motors. Today, Cruise is a subsidiary of General Motors.
However, Cruise has faced a number of setbacks commercializing its autonomous vehicles and has ultimately been a hefty drain of cash flow of GM.
One of Tesla's longest-standing bulls is Ron Baron, a mutual fund manager. Back in November, Baron sat down for an extended interview with Andrew Ross Sorkin of CNBC. The profile mainly comprised questions about Baron's investment philosophy as well as his conviction regarding Tesla.
During the segment, Baron revealed that he had a small investment in Cruise. Unsurprisingly, the billionaire investor has formed a positive rapport with GM's CEO, Mary Barra.
But perhaps what was most intriguing was that Baron told a Sorkin a story in which Barra asked him for an introduction to none other than Elon Musk. While the details surrounding her request were left private, I'm speculating that GM may be the major auto company Musk referenced during Tesla's earnings call.
Image source: Getty Images.
Why I see Tesla as the better buy
During the earnings call, investors learned that Tesla has collected more than 1.3 billion miles of driver data for FSD. This vast library of data provides Tesla with an unparalleled competitive advantage over its peers.
Considering GM's ambitions with Cruise are looking increasingly bleak, I think it's natural to suspect that this is who Tesla may be negotiating with as it relates to autonomous driving.
However, it's very important to understand that this is my own personal guess. Moreover, the specifics surrounding which company Tesla may be partnering with are less important in the grand scheme of things.
The bigger theme is that Tesla is making notable strides in FSD over the competition, and the technology could be a major catalyst for the company in the long run.
For starters, if Tesla is the first major auto manufacturer to implement self-driving into its cars at scale, this could spark some new demand for its vehicles. Furthermore, should Tesla obtain a wide lead over the competition, the company will always have the option to license FSD. By doing so, Tesla would effectively be evolving from primarily a producer of electric vehicles to a more prolific AI platform and software-enabled business.
Baron describes this dynamic during his interview, comparing Tesla to Intel. Similar to how Intel supplies chips for leading hardware developers, Baron thinks Tesla will be the ultimate supplier of superior technology in the automobile industry.
It's important to note that Tesla's ongoing discussions with other automakers regarding FSD is not reason enough to buy the stock. Strategic partnerships are complicated, and these deals can easily fall apart. Moreover, even if a partnership is formed, it'll likely be quite some time before Tesla realizes any significant gain.
While autonomous driving is an interesting component of the AI realm, there are significant regulatory hurdles that must be cleared before this technology goes mainstream.
Nevertheless, I see Tesla as as the best opportunity at the intersection of AI and automobiles, and think investors with a long-term time horizon should consider scooping up some shares.
