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Without cheap electric cars, Tesla could lose its lead

Elon Musk’s decision to greenlight robotaxis instead of affordable electric cars could cause the company to lose its lead.

Last week, Musk reportedly abandoned that effort in favor of developing robotaxis, a pie-in-the-sky project that defined his first decade at the helm. There’s an argument to be made that the company got to where it is today because it made big bets and then delivered on enough of those promises to impress shareholders and generate a ton of positive cash flow. The thing is, in the early days, you have everything and nothing to lose. The entire company could go bankrupt, but with less risk.

Today, Tesla is no longer the brave upstart. Last year, the company generated nearly $100 billion in revenue and net profits of $15 billion, and other automakers are offering shareholders fatter dividends. This is a global manufacturer that produces hundreds of thousands of vehicles each quarter, and success in this type of operation is measured by continuous improvements in productivity and process metrics.

Tesla is reportedly about to produce a $25,000 electric car. In January this year, Musk confirmed that the company would start producing next-generation cars at its Texas factory in the second half of 2025. According to Reuters, suppliers have been asked to bid for parts contracts with weekly production of 10,000 units each. Week. That would be a welcome shot in the arm given the weak sales of the company’s existing product lines.

An affordable electric car would significantly increase Tesla’s total addressable market by significantly reducing the average selling price in the United States, which is currently around $47,000. It would also give the company a product to withstand the expected onslaught of cheap Chinese electric cars.

But it also means creating a production line from scratch, something the company did at scale last time with the Model 3. By all accounts, it was not a fun experience.

Build a robotaxi, though. Now that sounds interesting.

Musk has long been fascinated by the concept. Four years ago, he said such a car could earn its owner up to $30,000 a year, ferrying paying passengers back and forth. Musk reportedly told biographer Walter Isaacson that it would be so popular, “we won’t build enough of it.”

The problem is that Tesla has been trying to master self-driving hardware and software for some time, but it seems nowhere near delivering a vehicle capable of Level 5 driving, which requires zero human input. Despite years of effort, Autopilot is still a Level 2 system, meaning it requires human attention at all times. The same goes for fully autonomous driving. (In fact, the company recently started using the word “supervisory” when referring to the software suite.) While artificial intelligence has been advancing rapidly recently, it remains to be seen whether it will advance fast enough to provide Tesla with a A blockbuster product?

Given Musk’s desire to pursue exploratory projects, the logical path would be to set up a skunkworks within Tesla, or create a division purely focused on bringing robotaxis to market. The latter is unlikely to happen because much of Musk’s wealth is tied to Tesla stock, and he likely doesn’t trust anyone else to be able to run the company when so much money is at stake. The former has a better chance, but Musk also likes to appear deeply involved in everything Tesla does. He balked at the idea of ​​”just” running a skunkworks.

The Tesla board should probably consider this. Maybe they are. But numerous reports also indicate how closely the board is tied to Musk. They don’t seem to have much disagreement, which could cost Tesla its lead.

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