Elon Musk Shares The Fundamental Value of Tesla & Why He Added Autopilot

Tesla CEO Elon Musk recently shared what he thinks is the fundamental value of Tesla in an interview with Tesla Owners of Silicon Valley club leaders. I’ve covered the first interview here and recently touched upon the second interview with a focus on the DOE loan that you can read here.

The Fundamental Value of Tesla

Tesla’s mission is to accelerate the transition to sustainable energy, and this, Elon pointed out, is its fundamental value.

“Tesla’s fundamental value is to serve as an accelerant to sustainable energy.”

He then asked that if it wasn’t for Tesla, what would the world be like? Think about this for a moment. Imagine a world where Tesla didn’t exist. Would another company have stepped up to push EVs and sustainability? Nissan has done some good with its LEAF, but we all know that it was Tesla that revolutionized the industry.

“Let’s say you’re sort of looking at this from the macroeconomic god standpoint, or like civilization or the Sims or something. Like, what’s the difference here? The difference between Tesla and not Tesla is how many years is sustainable energy accelerated. That is the fundamental good of Tesla. And there’s also the autonomy thing, which I also think will be very, very significant. It will be very significant.

“But I’d say in the absence of there being a fundamental technology discontinuity in the form of electrification and autonomy — both of them together — I think a new car company cannot succeed.”

The Real Reason People Should Have Shorted Tesla

Elon Musk shared what he thought was the real reason that those who shorted Tesla should have done it. And some, he added, might have shorted Tesla for this very reason. This reason is also linked with why it’s hard for new car companies to succeed.

“I’ll tell you the real reason that people should have been shorting Tesla and perhaps why some of them were shorting Tesla, and the real reason that new car companies cannot succeed or why it’s so hard for them to succeed.

“This was first told to me by this automotive investor when I was at Axel Springer headquarters getting a Golden Steering Wheel award. This guy is apparently, like, the best automotive investor in the world. He comes up to me and was like, ‘Hi, I know why you’re going to fail,’ and I’m like, ‘Well, please tell me. I can think of several reasons.’

“And he said the car companies don’t make any money on the new car sales. They make all of their money selling parts to cars — to the existing fleet. So when the warranty runs out, like, the life of a car before it hits the junkyard might be 20 years. Warranty is going to typically run out after four years and there’s a bunch of stuff that’s not covered under warranty. So, if you’ve got a steady-state fleet, it means that 80% of your fleet is not under warranty.”

Elon explained that high-margin replacement parts can be sold to the existing fleet while selling the new cars at effectively zero margins. He added that it’s like a razor and blades perspective.

“You sell the razor for zero margins and you sell the blades at a higher margin. This creates a massive barrier to entry for any new car company because you have no existing fleet. So the only way for a new car company to succeed is — that does not have an existing fleet — is to charge a lot more than what others are paying, competitors. And in order to charge a lot more and have people actually buy it, the product must be so, so compiling that people are willing to pay the premium above the alternative cars from the incumbent carmakers.”

This, Elon said, is the only way to succeed as a car startup, adding that he thought that without both electrification and autonomy, this formula will not succeed.

“You have to win on autonomy, you have to win on electrification, and you have to make a product so compelling that it is worth paying the premium relative to the incumbent competitors. This is a very big deal.”

Eli Burton Is That Customer

Eli Burton, who is the club leader for the My Tesla Adventure Club, was also part of the group interviewing Elon Musk, and Eli told him that he was that customer. Eli said, “I am exactly that customer by the way. I first test drove a Tesla in 2015. The acceleration and all that was cool. The electric was cool. But when I tapped the stick for Autopilot 1.0 and it locked on the road like rails, I went, ‘Holy shit, the future is here!’ It went from a $4,000 car to at the time [to] a fully-loaded Model S opposite into the spectrum. That exact angle was it.”

It was Tesla’s Autopilot that sold the car. The electric and acceleration were great, but it was the autonomy that pulled everything together and made it a truly unique car that stood out from the other cars that incumbent automakers had to offer at the time. Eli added that if it wasn’t for Autopilot, he probably still wouldn’t be in a Tesla today.

The Death Of A Cyclist Is What Inspired Tesla To Go Autonomous

Elon shared what inspired him to add autonomy.

“The thing that actually got me to get a move on with Autopilot — this anecdote illustrates several things by the way — I think this might have been 2014 or something like that. A Model S owner in the Bay Area fell asleep while driving his Model S and ran over a cyclist and killed the cyclist. Now, if there had been even basic lane following, that cyclist would still be alive.

“I was like, ‘man, if anything illustrates the importance of Autopilot, it’s this case here where that innocent cyclist would still be alive if that guy who had fallen asleep had Autopilot or any kind of lane following — even basic following. The car would not have veered off the road and killed the cyclist.’

“I was like, ‘We’ve got to get a move on here.’ This is a real safety issue.’ That’s part of what really encouraged me to, like, ‘We need to go make this happen as quickly as possible.’”

You can watch the full second part of the interview here.


 


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