Synopsis: Elon Musk track record or not, something doesn’t add up.
The Tesla plan for Optimus robots to effectively become the “iPhone of humanoid robots” leading Tesla to a valuation 10x that of Apple has some serious problems.
- Firstly, there are the question marks as to whether Tesla really has what it takes to become so dominant in humanoid robots.
- Secondly the question as to how long it would take for humanoid robots to be able provide the revenue to keep growing Tesla.
- Thirdly, companies will be ready to buy robots before individuals, so how will Tesla tackle this step until the mass market is to buy a Tesla humanoid robot?
- Fourthly, the question as to whether car sales or “robotaxi” and full self-driving can support even the current Tesla share-price in the interim.
- Fifthly, the valuation could never be reached without changing the world in such profound ways that considering the future value of Tesla in today’s terms no longer makes sense.
The last point is that no matter how dominant Tesla is as a supplier of robots, society and the economy adjusting to having that number of robots would cause society in its current form to collapse, something Elon Musk himself has predicted, which means a valuation calculated assuming everything continues unchanged makes no sense.
Musk said at last night’s Tesla Annual Shareholder Meeting that the automaker’s latest in-development product, a humanoid robot once portrayed by a person dancing in a suit, will one day make the company worth $25 trillion.
For context, as CNBC’s Lora Kolodny and Ari Levy point out, that’s more than half of the value of the S&P 500, which measures the performance of the 500 largest publicly traded companies in the U.S. and is currently valued at around $45.5 trillion.
Elon Musk Says Optimus Will Make Tesla Worth Half Of The Entire S&P 500 (insideevs.com)
So, Tesla held its big annual shareholder meeting yesterday, and that included a vote to (again) give Elon Musk by far the biggest CEO compensation package in history. But the biggest story at Tesla is the same as it was last quarter, last year, and in the years to come. The company is trying to shift into an AI and robotics company. While its revenue and profits are almost entirely from producing and selling cars right now, Elon Musk and the company have been very clear lately — if you don’t believe in Tesla’s AI and robotics work and plans, you shouldn’t be invested in Tesla.
Tesla Is Either Going To Be The Biggest Company In The World Or Collapse In Next Few Years – CleanTechnica
I would not go quite as far as the above quote, in that while research makes it clear even Elon Musk does not believe these plans will play out as described, there may be a middle ground between these plans and failure.
Does Elon Musk deserve recently approved pay packet, and why does Musk even want even more money? That is a complex question to be discussed further in the next update due to this page/paper prior to the end of June 2024, but here is a preview.
Could Tesla become “the Apple” of humanoid robots?
Does Tesla have the technology to become the ‘Apple” of robots?
Tesla is currently far from the only company pursuing the humanoid robot market, as per this paper/page listing more than 10 companies, and partnerships between robot makers and Nvidia and OpenAI meaning Tesla is taking on not just the robot companies themselves.
Other companies already have projects with robots at work in car factories, so owning car factories does not provide Tesla with a unique opportunity.
If Tesla really does have software capabilities beyond all other Fortune 500 companies, opinions vary on how this has translated into self-driving. Many see systems from Xpeng as potentially more capable, and even BYD, who appear to be overtaking as leaders in EVs and already lead in PHEVs, have recently shown BYD self-driving tackling situations beyond what we have seen demonstrated by Tesla.
In summary, maybe Tesla has an advantage, but there is no irrefutable evidence Tesla has the lead.
How long before Tesla robots could provide a significant revenue stream?
The track record of Elon Musk on prediction timing has been, let’s say, somewhat questionable. There have been a long list of missed deadlines and while I will add some examples in an update, examples do include achieving milestones in autonomous self-driving, which are the same types of milestones needed to get robots to the software behind autonomous robots. It could be that Tesla has learnt from previous delays and will now be on schedule, but based on past experience, it is also possible that Tesla is several years away from the robots being as universal as envisaged.
Even on the schedule suggested by Elon Musk as the 2024 shareholder meeting,
Who will buy the first robots, and will they buy from Tesla?
As discussed in the paper on “Wright’s Law”, new technologies at first sell at a premium and as a consequence need to first target buyers willing to pay that premium for what to them is a “Unique selling proposition”. For humanoid robots, the customers with the most compelling business case are those who can replace human workers with robots. It is not just independent experts like Tony Seba that predict this, but also Elon musk himself.
While Elon predicts prices of $20,000 per robot, current early adopter prices in 2024 are closer to $100,000 per robot, but that can still add up for a business. Consider 7 days x 24hours gives 168 hours, which is 4x a human 40 hour working week with 8 hours to spare for maintenance, and if the cost spread over only 2 years the robot already costs $6 per hour worked, including administration and health and safety and other costs, and in factory and warehouse situations could replace 4 workers.
Telsa needs a plan to sell to these business “early adopters” if Tesla is to be seen as a leader, and contracts with Amazon and other potential early adopters are all held by rival robot companies at this time.
A plan for a US$30 billion valuation, represents “catch 22”.
Capitalism fails: How do you afford to buy a robot if you lose your job to a robot?
In the past new technologies have always replaced the most dull and repetitive jobs and resulted in more jobs being created elsewhere. While this could in theory happen again, no one can see how, with the jobs to be replace including doctors and lawyers and most experts including Elon Musk agreeing that as Tony Seba puts it, “this time we are the horses”, in reference to how cars made horses redundant for transport.
Elon Musk himself predicts people could receive a “basic income” or even high level “basic income”, but either way people change from being “assets” that generate income to being an expence.
Arguably capitalism works because every worker has a significant asset in the form of their own ability to work. Banks provide loans against this asset. Yet if robots achieve the level of skills needed for this vision, for most people that asset is suddenly of far less value.
Can corporate and societal inequality stretch to a $30 trillion-dollar company?
For perspective, consider that the entire S&P 500 has a total valuation in early 2024 of around $45 billion. Already that figure is “top heavy”, with the top 14 US tech companies having a value of over $18 trillion which is over 1/3 of the number, and an average value 23x higher than the average for the rest of the most valued companies.
While the stock market indexes in the US show strong growth, this growth is far from evenly distributed. The reality is that it is not just individual wealth that has a distribution problem, and inequity is increasing in companies as well. But imagine Tesla rising to almost double the combined value of those top 14 tech companies. To be valued at 10x Apple, Tesla would need revenues 10x the just under 400 billion Apple annual revenue, which means around 4 trillion in annual revenue, or around the same as the total GDP of the entire Indian nation of 1.4 billion people.
Robot cars: Self driving and robotaxi.
Despite all the missed deadlines, I do believe Tesla will achieve self-driving, and for me the question is more will Telsa be significantly ahead of others when they do finally get there.
Can EV sales, “robotaxi” and self-driving provide interim revenue growth for Tesla?
The model Y could retain the title of best-selling vehicle worldwide in 2024, but with no update on the way, sales will likely be lower than in 2023, as will sales of the Model 3. While the Cybertruck is ramping up production, it is unlikely that it will be able to compensate, and Tesla could face the first year of flat sales since the 2017 launch of the Model 3. The picture will become clearer once Q2 sales figures are available in June 2024, but it seems likely Tesla will fall back to 2nd place in EV sales in Q3 and Q4 behind BYD. Given BYD also sell plug-in hybrids in around the same numbers as they sell EVs, that would give BYD twice the total sales of plug-in vehicles as Tesla.
While there is the robotaxi announcement scheduled for August 2024, given the regulatory hurdles for robotaxis, significant sales in either 2024 or 2025 seem impossible, so when factoring in no Model Y update is scheduled, it looks like the next two years could be very quiet for EV sales. Note that Tesla faces potential hurdles in each of its three major markets over the next few years, with increased competition and a difficult economy in China, the threat of a change of government in the US that could be less supportive of a transition to EVs, and a move to the right in the EU that could also see support for EVs wane.
It is not like Tesla is going face huge losses or anything, but the current share price reflects Tesla either being on the path to becoming the world’s biggest carmaker, or Tesla finding other paths to revenues well beyond those of any current car manufacturer.
The impact on share price will all come down to how well investors react to the message “Tesla is not really a car company” and ignore the somewhat flat car sales part of the equation.
A falling share price alone does not make a company go out of business, or necessarily even impact the day to business. Tesla is already profitable, and if it remains profitable, provided shareholder unrest does not erode support for Elon Musk, what does it matter? The only impact of share price on operation is the ability to make acquisitions for stock and remunerate executives through stock.
Recap & background. (draft)
The 2024 shareholder presentation.
From the highlights: The suggestion was robots would cost $10,000 dollars and could be sold for $20,000 which could provide revenue of 1 trillion per year. Quick calculation reveals this would require selling 100 million robots per year.
Apple delivered 231.8 million iPhones in 2023. That’s a year-over-year increase of 2.89%.
iPhone Users and Sales Stats for 2024 (backlinko.com)
Elon musk made projections for 2024 and 2025, with robots in those two years limited to use inside Tesla but reaching “a few thousand” in number within Tesla during 2025.
On cars, there were new models discussed, but not yet revealed, nor production ready, with the prediction the Model Y would remain world’s best-selling car in 2024.
Then there was the claim that software developed internally at Tesla was better that of any other fortune 500 company. Note that Apple, Microsoft and Google etc are definitely fortune 500 companies. Open AI? Maybe not. Another claim was that Tesla software was more advanced than any other software at analysing video.
Elon Musk has had outstanding achievements, but not everything has gone to plan.
SpaceX was founded by Elon Musk in 2002 even before Tesla began, and while SpaceX seems a long way from the stated goal of establishing a colony on Mars, despite being a far lower profile company, SpaceX has achieved a value around 1/3rd of that of Tesla as of June 2024.
As of June 2024, SpaceX has around US$200 billion valuation.[10]
SpaceX – Wikipedia
While Elon Musk was not part of Tesla when it was founded in 2003, his investment in 2004 within the companies first year does, as agreed in legal settlement 2009, entitle him to be considered one of the 5 co-founders, and his role as CEO from 2008 supports him playing the main role in the success of Tesla.
While overall it is hard to consider Tesla anything but a success, the company did come close to failure at one point and the many targets have been significantly behind announced schedules. Full self-driving, which is the same type of AI that is behind Optimus robots, is one area where estimates of how long things would take have been particularly problematic.
Elon Musk also has the other ventures, including Twitter/X, X AI and The Boring Company. Twitter has so far not been considered a success since the takeover, but perhaps it is too early as it is also for X AI. The Boring Company founded to push the idea of hyperloop as floated in 2013, has not really been a success story.
Overall, there are some phenomenal successes, but also the suggestion that not everything is a success, making it hard to write off Elon Mush achieving these goals, but also far from certain that even if Tesla is an ongoing great success, things will pan out as suggested.
The pay package: logic, motive and history.
Logic: Why the historically high CEO compensation?
It seems hard to imagine that it was the Tesla board arrived at the figure without at least consulting Elon Musk. This has to be compensation Elon Musk wants. Why Elon would want the compensation is discussed below, but that still leaves the question as to why the board would support this deal.
In the end, it while would seem the board has to believe moving to any other person as Tesla CEO would cost even more than paying billions in shares to Elon Musk, there could be a second factor. In 2018 when the package was first approved, then entire company was valued at around $50 billion before falling to as low as $32 billion in 2009, and Tesla performing so well against the performance targets that pay deal would amount to shares worth almost 10% of the company may not have seemed very likely. However, having approved the deal initially, no longer backing the deal would require either admitting they got it wrong or suggesting a loss of faith in Elon Musk.
The logic may be more about how the deal sounded in 2018 when Tesla was it was uncertain would ever become profitable, than how the deal has sounded since 2021 when Tesla share price soared.
Motive: Why does Elon Musk desire this level of compensation.
Clearly, Elon Musk does not really need the money at this time. Yes, it would effectively restore his position to that before spending on twitter, but when the deal was first approved, he was no looking at buying twitter, and with the future of Tesla still under question, was nowhere near as wealthly as he has become since that time.
One reason would be that given that the pay package was originally approved, even if he no longer needs the money, in his mind, a deal is a deal. However, he did go beyond the “a deal is a deal” position in declaring that without having the control that comes with owning 25% of the company, Elon Musk feels perhaps he should pursue goals for Tesla such as full self-driving, AI and robots outside Tesla.
More to be added on this.
Current pay deal status: June 2024 and not yet a done deal.
Note that although the shareholders voted to reinstate the huge pay packet, that alone does not end the question marks.
The favorable vote doesn’t necessarily mean that Musk will get the all-stock compensation anytime soon. The package is likely to remain tied up in the Delaware Chancery Court and Supreme Court for months as Tesla tries to overturn the Delaware judge’s rejection.
Musk has raised doubts about his future with Tesla this year, writing on X, the social media platform he owns, that he wanted a 25% stake in the company in order to stop him from taking artificial intelligence development elsewhere. The higher stake is needed to control the use of AI, he has said.
Elon Musk gets 77% approval from shareholders to get back his big, $44.9 billion Tesla pay package – ABC News (go.com)
History of the pay.
Tesla has launched a new website aimed at convincing shareholders to vote for reinstating Elon Musk’s $55 billion compensation plan.
Back in 2018, Tesla shareholders approved one of the biggest compensation plans of all-time: a $55 billion fully stock-based CEO compensation plan for Elon Musk.
In January, a judge sided with lawyers representing a Tesla shareholder alleging that Tesla’s board misrepresented the compensation package when presenting it to shareholders.
It’s a complicated issue, but in short, the judge found that Tesla’s board and Musk didn’t play by the rules of a public company when it presented the plan to shareholders.
Tesla launches website to convince shareholders to vote for Elon’s $55 billion payday
The company Tesla is now reportedly even spending advertising money on the campaign to get shareholders to agree with the compensation package for Elon Musk:
Tesla has now disclosed that it is spending money to promote its shareholders vote to approve of Elon Musk’s $55 billion compensation package.
Back in 2018, Tesla shareholders approved one of the biggest compensation plans of all-time: a $55 billion fully stock-based CEO compensation plan for Elon Musk.
In January, a judge sided with lawyers representing a Tesla shareholder alleging that Tesla’s board misrepresented the compensation package when presenting it to shareholders.
It’s pretty funny that Tesla’s board, which got Elon’s compensation package invalidated after a judge found governance issues, is now approving spending Tesla’s money on an Elon-owned platform to try to influence a vote that would send even more money into Elon’s pockets.
Tesla now spends ad money to influence shareholders approval of Elon Musk’s $55B payday
Tesla CEO Elon Musk is encouraging Tesla shareholders to vote on their shares with the offer of a chance to win a personally guided tour of the company’s Texas plant as the board asks shareholders to reinstate his $56 billion pay package.
May 29 2024: Elon Musk urges Tesla shareholders to vote on pay with special offer
Despite the history, it is now declared to be about voting control.
If Elon Musk does not receive this package, which is valued at even more than what Elon spent acquiring Twitter, Elon Musk could leave Tesla:
“I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control. Enough to be influential, but not so much that I can’t be overturned. Unless that is the case, I would prefer to build products outside of Tesla. You don’t seem to understand that Tesla is not one startup, but a dozen. Simply look at the delta between what Tesla does and GM. As for stock ownership itself being enough motivation, Fidelity and other own similar stakes to me. Why don’t they show up for work?”
Is Elon Musk Going To Step Away From Tesla At Last? – CleanTechnica quoting Elon Musk
And Elon may be getting ready:
Many Tesla shareholders who will soon [June 13th] weigh in on Elon Musk’s $56 billion pay package are once again upset over the CEO’s actions. This time, it’s not moving the company away from a $25,000 mass-market car in favor of robotaxis—instead, it’s the diverting a shipment of AI-training Nvidia GPUs intended for Tesla to two of his own private companies.
News broke of Musk’s decision earlier this week in the form of leaked internal emails from graphics card manufacturer Nvidia, in a scoop published by CNBC. The CEO reportedly ordered Nvidia to allow X and xAI to jump the line and receive shipments of around 12,000 Nvidia H100 GPUs originally destined for Tesla as part of a $500 million purchase commitment by the automaker, effectively delaying Tesla’s potential delivery date by “months,” according to CNBC.
Tesla Shareholders Stupefied Over Musk’s Orders To Divert Nvidia Shipments To X
Tracking the plan.
This section will be updated with major events in progress of the robot plan.
July 2024: Robot delays and backing Trump for president.
The schedule for Optimus robots has been pushed back. Although 2024 dates have moved to 2025, and 2025 dates to 2026, that may not yet represent at full year delay as original dates were for late in the year.
Mr Musk’s businesses have been increasingly focusing on technologies such as artificial intelligence, autonomous driving and robots at a time of slowing demand for electric vehicles.
Mr Musk had previously said he expected the robot, called Optimus, to be ready for use in Tesla factories by the end of this year.
“Tesla will have genuinely useful humanoid robots in low production for Tesla internal use next year and, hopefully, high production for other companies in 2026,” Mr Musk said on his social media platform X, formerly known as Twitter.
Musk says Tesla to use humanoid robots next year (BBC July 2024)
Updates.
- 2024 July 22: Added tracking.