Elon Musk’s decision to greenlight a robotaxi over an affordable EV may cost the company its lead.
Last week, Musk reportedly pushed for a robotaxi, the kind of pie-in-the-sky project that has defined his first decade at the helm. There’s an argument to be made that the company got to where it is today by betting big and then delivering on several of its promises to impress shareholders and generate significant positive cash flow. The problem is that in the early days, there was both everything and nothing to lose. The whole party could have gone down, but there were fewer in the line.
Today, Tesla is no longer the lucky start. It brought in nearly $100 billion in revenue last year and earned $15 billion in net profit, which would make other automakers reward shareholders with richer dividends. It’s a global manufacturer that turns out hundreds of thousands of cars every quarter, the type of operation where success is measured in continuous improvement in productivity and process metrics.
Tesla was reportedly on the verge of building a $25,000 EV. In January, Musk confirmed that the company will begin building a next-generation vehicle at its Texas plant in the second half of 2025. Suppliers have been asked to bid on parts contracts, according to Reuters mentionted, with a weekly production volume starting at 10,000 vehicles per week. Considering the significant sales of the company’s existing product line, it would be welcome.
An inexpensive EV would have greatly increased Tesla’s overall addressable market by dramatically lowering the average US selling price, which is currently around $47,000. It would also give the company a product to hold its own against a predicted onslaught of cheap Chinese electric vehicles.
But it would also mean building a production line from scratch, something the company last did at scale with the Model 3. Admittedly, that wasn’t a fun experience.
But building a robot taxi. Now, that sounds like fun.
Musk has long been enamored with the idea. Four years ago, he said such a car could earn its owner as much as $30,000 a year as it ferried paying passengers back and forth. It would be so popular, Musk According to reports he told biographer Walter Isaacson, that “there is no amount we could manufacture that would be enough”.
The problem is that Tesla has been trying to master autonomous hardware and software for a while now and doesn’t seem anywhere near delivering a vehicle capable of Level 5 driving, which would require zero human input. Despite years of work, Autopilot remains a Level 2 system, meaning it requires human attention at all times. The same applies to Full Self-Driving. (Indeed, the company recently started using the term “supervised” when referring to its software suite.) And while AI has been developing rapidly lately, is it moving fast enough to give Tesla a blockbuster product in the coming years?
Given Musk’s desire to continue exploratory projects, the logical course would be to create a skunkworks within Tesla or create a division focused purely on bringing a robotaxi to market. The latter is unlikely to happen because much of Musk’s wealth is tied up in Tesla stock, and he likely doesn’t trust anyone else to run the company when so much money is on the line. The former is more likely, but Musk also likes to appear heavily involved in everything, well, Tesla. He would balk at the idea of ”only” operating a skunkworks.
It’s something Tesla’s board should probably weigh in on. And maybe it is. Crowd though References they’ve also shown how closely tied this board is to Musk. They don’t seem to disagree on much, and that could cost Tesla its lead.
