Is Elon Musk’s robotaxi ambition pushing Tesla to the brink?
Elon Musk’s subordinates at Tesla are accustomed to chaos. It comes with the territory of working for a chief executive who sets exacting targets and often abruptly switches directions – whose biographer describes his more intense moods as “demon mode”.
But even by Tesla standards, this year has been unruly. Its stock has slid more than 40 per cent amid slumping sales, confusing product decisions and more price cuts. Its once-dominant position in China’s EV market is under assault.
A meeting with India’s Prime Minister Narendra Modi for an expected investment announcement was called off at the last minute. All the while, the board has tried to revive a $56 billion payout to Mr Musk that a judge voided in January, on the grounds that directors had acted as “supine servants” to the chief executive.
Today, Tesla is expected to report a 40 per cent plunge in operating profit and its first revenue decline in four years. Mr Musk has ordered the company’s biggest layoffs to date and staked its future on a next-generation, self-driving vehicle concept called the robotaxi.
People familiar with his directives are unsettled by the changes the chief executive wants to push through.
The idea of creating a self-driving taxi service has been floated at Tesla for at least eight years, but the company has yet to stand up much of the infrastructure it would need, nor has it secured regulatory approval to test such cars on public roads. For the moment, Mr Musk has put off plans for a $25,000, mass-market vehicle that many Tesla investors – and some insiders – are pushing for and believe is crucial to the car maker’s future.
After media reports on the shift in strategy, key managers including Drew Baglino, an 18-year company veteran who headed Tesla’s power-train engineering and energy business, have left.
Mr Musk, 52, has steered Tesla out of many jams in the past. At $469 billion, the company is still valued at more than nine times the market capitalisation of General Motors or Ford Motor. But after losing about $350 billion in market capitalisation over four months, employees, investors and analysts alike are bewildered and second-guessing the company’s strategy.
“The stock will need to undergo a potentially painful transition in ownership base, with investors previously focused on Tesla’s EV volume and cost advantage potentially throwing in the towel,” Deutsche Bank analyst Emmanuel Rosner said last week, slashing his price target by more than a third.
Mr Musk has signalled on his social media network that the recent moves amount to activating wartime chief executive mode.
He liked a post saying as much after sending a companywide email announcing that Tesla was cutting more than 10 per cent of global headcount, which would mean eliminating at least 14,000 jobs.
The actual number of people let go may exceed 20,000, according to sources.
Mr Musk’s reasoning, according to a source, is that Tesla should reduce headcount by 20 per cent because its vehicle deliveries dropped by that amount from the fourth quarter to the first quarter.
For those still among Tesla’s ranks after this culling, Mr Musk has radically altered the marching orders. The company is all out “for autonomy”, he declared last week.
The robotaxi is now taking precedence over a cheaper car he first announced four years ago, both with respect to setting timetables for prototypes and arranging production capacity, a source familiar with the planning said.
Mr Musk has talked big about autonomy for more than a decade, and has convinced customers to pay thousands of dollars for a product Tesla has marketed as Full Self-Driving.
The name is a misnomer – FSD requires constant supervision and does not render vehicles autonomous – but Mr Musk has repeatedly predicted it is on the verge of measuring up to the branding.
“I’m the boy who cried FSD,” he said in July.
Mr Musk and top engineers are particularly bullish about a major change in how FSD now works. Cameras placed around the company’s cars are taking in video and using this footage to dictate how the vehicle drives, instead of relying on software code. Ashok Elluswamy, director of Tesla’s autopilot programme, said last month that this should lead to “unprecedented progress”.
But optimism around FSD and Mr Musk’s belief that this new approach could bring about robotaxis is clouding the future of Tesla’s $25,000 car project. Sources disputed the notion that the programme has been cancelled altogether. All along, the company has been pursuing a cheaper vehicle architecture that will underpin several different types of models, one of which would have no steering wheel or pedals.
While these sources confirmed the robotaxi is being prioritised, one described the next-generation vehicle project as an effort to wring cost reductions out of components and production methods, then apply those innovations to cheaper iterations of the Model Y and Model 3, the company’s two most popular EVs.
Teams are placing particular emphasis on bringing these cost savings to bear with the Model Y, the best-selling vehicle in the world last year.
It is unclear just how much solace this might be to investors who have been spooked by reports that Tesla’s answer to affordable options such as the Toyota Corolla has been scrapped entirely.
Many are concerned that the only new model the company will offer to consumers in the half decade after the Model Y’s debut will be the Cybertruck, an expensive pickup that is difficult to build.
Last week, the company recalled the almost 3,900 Cybertrucks it has sold to fix faulty accelerator pedals.
“Investors, particularly institutional ones, are losing patience,” said Bloomberg analyst Steve Man.
“The initial hype around Full Self-Driving and robotaxis has waned, and the pendulum has swung in the opposite direction,” Mr Man added.
While the concept has been on the radar for years, much of the necessary infrastructure has yet to be put in place