Tesla: World’s First Digital Car
When you see a Tesla you think a car, a car that runs on battery and has an electric motor to drive. Then why is Tesla valued at multiples of the car companies that have been around for decades, and sell more cars in a month than Tesla sells in a year. Tesla sells close to 500,000 cars in a year while Toyota sells more than 10 million cars in a year, yet Toyota is valued at $292 billion while Tesla is valued at $566 billion (as on 3rd June 2021). So why is Tesla valued at almost double Toyota?
The answer lies in the fact that Tesla is not just a car, its a digital car! And when we say digital, it does not mean it has an integrated Alexa or Hey Google which can play music, roll down windows or open the sun roof, the damn car can drive itself.
According to Tesla’s website the car with full self drive capabilities can
- change lanes
- automatically drive on highways, get on and get off the ramp
- park itself
- come to you — summon feature
- navigate traffic lights (assisted)
As we move into the future the car would get evolved to practically drive itself from one place to another, and work as robotaxis in the future if the owner wants to (yeah the future is here).
So how does a car can self drive itself?
Simply put if a car can see things that a driver can see, a car can self drive itself, and unlike a driver, a car cannot get distracted by phone calls, text messages, alcohol, amorous activities etc.
There are two approaches that self driving car companies use to build self drive capabilities or make the car see objects on the road — LIDAR which is a light based radar which bounces light off objects to get a sense of surrounding, which usually goes on top of the car, Waymo uses this. Tesla has built the autopilot feature without using LIDAR, it uses 8 cameras, 12 ultrasonic sensors and a forward facing radar. Elon Musk believes this is a cheaper way and more accurate.
But that is not the difference between accuracy of Tesla and Waymo.
But collecting data is just one part, like seeing is just one part, acting on what we see is the real deal — the difference between a good driver and a bad driver! And acting on the seeing is based on experience and skills. Tesla collects billions of miles of real world driving data from its cars and as more and more Teslas come on the road more miles will be collected. In comparison other companies are still using simulations. Tesla has used this data to create a a more evolved algorithm to act on what it sees. (This can be a very lengthy discussion)
To use a cricketing analogy, while Tesla is out in the field batting, other companies are doing net practice. And as anyone remotely familiar with Artificial Intelligence knows the more data you have the more accurate your model would be. And this competitive advantage of Tesla puts it years ahead of any car company dreaming of putting a self drive feature on the road.
So big deal?
It is a very big deal. While the technology is awesome, its utility is even more awesome. The productivity benefits of having a Full Self Drive in your car can add upto 2 hours in your day, till now you could only get the same benefit by hiring a chauffeur. And if you were to hire a chauffeur to drive you around in United States, it would cost you around $4000 per month and here is a car that can drive you around for approximately $149 per month (estimated). Even by Indian standards this a good bargain, where this would cost you around $250 per month to hire a chauffeur to drive you around.
So how does this make Tesla valuable?
In my opinion this FSD capability that Tesla now sells for $10,000 and is rumored to be close to offering a monthly subscription, makes Tesla more of a software company and less of a car company. So while it makes money off its hardware (car) the margins are low. Tesla can sell the FSD “software” at 90% margin and that too as a subscription, something what Microsoft does or Amazon’s AWS does. All this software subscription revenue will just add to Tesla’s bottom line, as the hardware is already paid for in the car and the customer is paying for the software that can be switched on remotely. As more and more people buy Tesla’s and adopt its full self drive feature, Tesla will become just like a Microsoft collecting subscription revenue for its software, making Tesla the world’s first digital car company!
