One Chart Showing Tesla’s Glimmer of Light in 2024 Still Shining

One Chart Showing Tesla’s Glimmer of Light in 2024 Still Shining
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Tesla’s stock is tanking, critics abound… but could AI be its secret weapon?

Quick heads up before the Tesla story: Two exciting things are happening soon that I think you’ll find super interesting.

  1. Future-Proof Your Organization (MIT Webinar): I’m partnering with MIT Sloan on a webinar about building organizations that can thrive in the future. Think scaling new ideas, accelerating digital change, and staying ahead of the curve. It’s on April 23rd, and even if you can’t make it live, register anyway to get the recording! Register here.
  2. Future Readiness Event: If you’re in Europe, join me on May 21st in Milan! My school is hosting this event, and we’re talking about how companies can be prepared for, well . . . anything! We’ll have a sneak peek at the latest Future Readiness Indicator results. CEOs, business owners, and our top professors will be there. It’ll be a great time to learn and connect. Learn more here.

Okay, now let’s dive into that Tesla story…

The EV market overall is cooling down, and competition from China is heating up. So, is Tesla finally losing its magic? It even missed its delivery and volume forecast last quarter, and it marked its first year-over-year decline since 2020. One former Tesla executive said Elon Musk “isn’t a magician, even though he has seemed like that for the last fifteen years.” As a consequence, its share price since dropped by 33% this year, making it one of the worst-performing stocks in the S&P 500 index.

One Chart Showing Tesla’s Glimmer of Light in 2024 Still Shining -
Sector stock: total return (%) over the last twelve months

So that’s the graph of woe. Why are things so bad? Competitive rivalry. In China, there are more than 129 EV brands. How are there so many? The country has vast suppliers, from new battery brands such as CATL to the aluminum part Wencan Group, with a large talent pool to boot. Then you have Xiaomi—the third largest mobile brand both in China and globally—which unveiled the SU7, a $30K Porsche clone, which also shattered any range anxiety with an astonishing 500-mile range.

Bad news for giants like BMW and Ford, right? For the first time, it’s very easy to build a car. These are not internal combustion engine vehicles. EVs come with simple product architecture and standard components. EVs have even greater acceleration and require no oil change. While no one is yet making enormous profits selling EVs, the barriers to entry have completely collapsed, and a century-old stable industry has now turned into a Wild West, its profit pool largely destroyed.

So if electric cars are all similar and prices keep getting cheaper, what sets a carmaker apart within the market? Remember, making cars at a huge scale is expensive. Unlike luxury brands like Hermes, traditional carmakers have to sell lots of cars to survive. GM’s annual capital expenditures is in the rough range of ten to fifteen times higher than Hermes’s.

So, how can they fight back? Everything points toward AI. And that might turn out to be the biggest glimmer of light for Tesla. No matter what you say about Tesla’s not-quite-ready autopilot, the company made a major move when its latest and more advanced driver-assist system (features that help the driver with tasks like steering and braking) was launched in 2023.

Since 2016, each Tesla has had a hidden AI program. This program learns by secretly watching how its driver handles different situations, even when autopilot isn’t on. When the AI guesses wrong about what the driver will do, it takes snapshots from the car’s cameras and sensors. This data goes to Tesla, where their AI team analyzes it. They use this to teach the AI to act more like a human driver. While Cruise collects data from 100 vehicles and Waymo from 1,000, Tesla does so from over 2 million cars. This massive amount of real-world data is a huge advantage for Tesla.

Tesla might be losing its edge in electric cars. But when it comes to AI and digital tech, they’re playing a whole different game. We decided to use an AI program to analyze what executives say about electric cars and AI. The following graph compares how the four companies BMW, Ford, Volkswagen, and Tesla compare in terms of their artificial intelligence capabilities and their embrace of EVs. Within the general category of AI, we include self-driving cars or autonomous vehicles, AI/machine learning investments and applications, and overall strategy around AI. With EVs, we focus on their current and planned fully electric vehicle offerings, battery technology development, charging infrastructure, and overall commitment to an electric future. We downloaded all the quarterly earning calls where CEOs and CFOs got grilled by investor analysts from Wall Street, and then we deployed an AI program to score these dimensions. We scored those companies on a scale of 0 to 100, 0 being low on AI/EV and 100 being high on AI/EV. Here’s the result.

One Chart Showing Tesla’s Glimmer of Light in 2024 Still Shining -
This chart shows that while rivals are catching up with Tesla on electric cars, the company is still ahead when it comes to AI.

What we saw is that, from 2015 to 2023, traditional car companies have closed in on EVs, which explains some of Tesla’s current woes. But when it comes to AI, up till most recently, most of these companies talked about their agency sales model, utilizing AI and web crawlers for pricing and demand forecasting, and applying AI across R&D, sales, production, and administration. In short, their use of AI centers around streamlining sales and predicting demand.

Not Tesla. AI permeated almost every topic discussed, from manufacturing technology to autonomous driving to their humanoid robot project. Massive investments in AI hardware, software, and training were a central theme. In Tesla’s earnings call, the conversation emphasized how Testa sees itself as an AI and robotics company that happens to make cars.

Musk’s AI Advantage?

Given how quickly other car companies are closing in, why isn’t Elon Musk more nervous these days? He’s a guy who loves distraction and thrives on crisis. The current down market has probably ignited more energy in him than despair. But if AI is the next frontier, a frontier that can again pull Tesla ahead, not just of traditional carmakers but also of all the Chinese EV makers, it should be no surprise that Elon Musk is pulling new funding—$3 billion to be exact—to fund his AI startup and his announced Robotaxi, which is set to launch in August 2024. And that might be the magic Musk will use to again pull ahead by the end of 2024.

One Chart Showing Tesla’s Glimmer of Light in 2024 Still Shining -

Thanks for reading! If you’re attending either event, let’s connect there. I would love to hear your thoughts on the Tesla situation. I’ll be watching to see if Tesla’s AI gamble pays off!

P.S. Gear up for the next release of the Future Readiness Indicator on May 21st! This cutting-edge edition will unveil fresh insights across the Automotive, Financial Services, and Consumer Packaged Goods industries. Discover how to steer your company into the future with strategies that top industry leaders are using to outpace change. Don’t miss out—mark your calendar and stay ahead of the curve!

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4 comments

  1. IPTV SIN CORTES

    Attractive section of content I just stumbled upon your blog and in accession capital to assert that I get actually enjoyed account your blog posts Anyway I will be subscribing to your augment and even I achievement you access consistently fast

  2. Marco Stevenson

    Tesla’s prowess in AI is clearly a game-changer, setting them apart in a crowded field. However, while their technological edge is a strong asset, the increasing competition from global EV manufacturers cannot be ignored. Tesla will need to continue innovating and not just rely on past successes if they are to maintain their market lead amidst growing challenges.

  3. Great article, Professor Howard Yu—your analysis compellingly outlines Tesla’s position at the forefront of this transformation. As a proponent of sustainable technology, I find it encouraging to see such a detailed and articulate discussion on how Tesla is leveraging AI to not only enhance vehicle functionality but also to champion a sustainable future.

  4. Tesla’s AI integration really sets them apart from the competition. While other car manufacturers are just beginning to explore the AI landscape, Tesla has been innovating in this space for years. Their use of real-world data from millions of cars gives them an unmatched edge in developing AI that truly understands human driving patterns. It’s exciting to see how they’ll use this advantage to maintain their lead in the industry despite the rising competition.

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