And the blunt reality of geopolitics
YOU HAVE to hand it to the “technoking”. For all his impish self-aggrandisement, mockery of deadlines, baiting of regulators and soon-to-be sideline as a “Saturday Night Live” comedy host, Elon Musk is deadly serious about technology. So serious, in fact, that as he was discussing the nitty-gritty of neural networks on an earnings call on April 26th, Tesla’s boss did not miss a beat when what sounded like his infant son let out a wail in the background. The electric-car maker’s record net profit of $438m in the first quarter, the seventh straight in the black, came as an afterthought.
Such is the allure of Tesla’s whirring money machine that many now give the benefit of the doubt to Mr Musk’s more eccentric claims. His latest involves artificial intelligence (AI). In the future Tesla will be remembered not just as an electric-vehicle (EV) and renewable-energy pioneer, he says, but also as an AI and robotics company. He bases this on a belief that it is close to cracking the challenge of self-driving cars using just eight cameras, machine learning and a computerised brain in the car that reacts with superhuman speed. He calls full self-driving “one of the hardest technical problems…that’s maybe ever existed”.
Amid the techno-optimism, though, Tesla also faces the dreary reality of everyday life. Though it expects to deliver about 50% more vehicles this year than in 2020, or around 750,000, like other carmakers it is struggling with a shortage of computer chips. The fiery crash of a Model S in Texas, killing two, has raised concerns about its self-driving technology (reports that its Autopilot function was involved are “completely false”, Mr Musk said). A pandemic-related shortage of engineers hit its output in China, source of much of its recent growth. And the Chinese authorities, which used to shower love on the American firm, are showing signs of Tesla fatigue. Mr Musk may one day find the boundaries of his kingdom constrained not by physics but by geopolitics.
He is no longer alone in talking in grandiose terms about Tesla. These days sober sorts vie to justify the firm’s valuation of $700bn or so, which puts all other carmakers in the shade. When describing its potential, Jed Dorsheimer of Canaccord Genuity, a Canadian asset manager, starts with the invention of the printing press in 15th-century Europe. Adam Jonas of Morgan Stanley, an investment bank, believes Mr Musk’s EVs are in the midst of something akin to a “Model-T moment”—provided he can, like Henry Ford, crack mass manufacturing to make Teslas more affordable. Both compare Tesla to Apple, the American technology giant, to illustrate how Mr Musk could create a money-spinning ecosystem of gadgets and services that reinforce each other.
For Tesla bulls, the maker of EVs indeed has more in common with that of iPhones than it does with established car firms. Its boosters get excited about Silicon Valley-like innovation, not car sales. On Wall Street the value ascribed to Tesla’s relatively low-margin EV business is being eclipsed by the promise of more nebulous but potentially more lucrative ones, mostly involving software: the sort of connected services, such as maps, entertainment, ride-sharing, semi-autonomous driving and over-the-air upgrades that make Teslas a geek’s dream. Few assume, as Mr Musk does, that fully autonomous “robotaxis” are imminent. But some, such as Mr Jonas, think Tesla ride-sharing fleets, probably with someone at the wheel, will soon be rolling through city streets.
The magical realism may go beyond that. Besides AI and software, Mr Musk is also doubling down on Tesla’s original plan to build, alongside an affordable car, a zero-emission energy business. He has said his intention is to produce three terawatt-hours of battery capacity within a decade, more than 12 times as much as the goal of Volkswagen, its nearest EV competitor. Besides bringing the cost of cars down to $25,000 each, the batteries will also go towards Tesla’s home-energy-storage business. That would create what he calls a “giant distributed utility” that can cope with increased electricity demand as more people use EVs, as well as provide grid stability at times of bad weather. Mr Dorsheimer, who is particularly bullish on Tesla’s solar and storage business, thinks its energy brand could become “Apple-esque”.
Apple, worth more than three times as much as Tesla, is a flattering firm to be compared to. It is also the prime example of how deftly an American company can handle the ebb and flow of superpower rivalry. Yet when it comes to geopolitics, Tesla may be at a disadvantage. It is just as global as Apple: last year it made half its sales outside America; 21% came from China. But the $2trn global car market is more than four times the size of the one for mobile phones. With many more firms involved, cars are more politically sensitive than smartphones. Initially countries like China and Germany threw down the welcome mat for Tesla’s gigafactories, partly to goad local firms into producing better EVs. Now that this is happening, the pressure to keep Tesla down is increasing.
If Mr Musk is right that self-driving is the future of getting around, concerns about data-gathering and national security are bound to rise. China has already hinted it is sensitive to them. This year the government restricted the use of Tesla vehicles by military personnel and employees of some state-owned firms because of data-security concerns. Mr Jonas, for one, thinks Tesla’s position in China will be “substantially diluted” during the coming decade, as the car market morphs into a transportation utility run and regulated by the state in concert with local champions.
Cyber-paranoia may, of course, make it as hard to sell a Chinese car in America as an American car in China. And compared with the “insanely hard” problems Tesla is trying to crack, even superpower politics must seem like a minor irritation. But although Mr Musk can claim to rule over the realm of physics, politicians, bureaucrats and spooks run much of the real world. That is a source of power that even the technoking cannot disrupt.■
May 1st 2021 • Business • 1014 words