Elon Musk wants to make automotive history by developing the first cars that will grow in value after you drive them off the lot.
In a private call with investors on Thursday to explain the company’s plan to raise additional $2 billion in capital, Musk claimed that existing Teslas on the road will grow in value to be worth as much as $250,000 within the next three years. Over-the-air software updates that enhance self-driving capabilities will help the rolling computers increase in value.
At just $35,000 counting incentives and gas savings, that means the owner of a Model 3 could, in theory, earn a pretty penny.
"No one has quite articulated the problem and opportunity as well as Musk."
“No one has quite articulated the problem and opportunity as well as Musk,” James Hodgson, a senior analyst at ABI Research focused on autonomy, tells Inverse. “The idea of an appreciating asset: Cars are no longer sold to passengers and owned by them, but vehicles might become monetizable assets in which people pay for access to cars to consume mobility as a service as opposed to owning vehicles.”
These new predictions come according to two investors who got to dial into the call, and who anonymously told CNBC and Bloomberg that Musk thinks these developments will eventually make Tesla a $500 billion company, up from the roughly $44 billion it’s worth now.
This will all be thanks the potential for a million robo-taxis Tesla could have on the road by 2020. But even for Musk — who has outlined a plan for establishing a Martian city by 2050 — these predictions are particularly audacious.
“I’ve observed a higher-than-usual level of skepticism in the community about predictions from ‘autonomy day,’” Stephen Zoepf, Executive Director of the Center for Automotive Research at Stanford University, tells Inverse. “Elon Musk has undeniably been a creative and innovative force in the industry, but these seem to be among the more outlandish of his predictions.”
Like virtually every consumer product excepting rare collectibles and other valuables, cars get significantly less valuable the longer you have them. A $40,000 car will be worth around $36,000 within the first month after you buy it, according to data from Carfax. A new car is worth about 40 percent of what you paid for it within five years. Musk says that Tesla has three unique advantages that will help him change that.
1. Over-the-Air Software Updates
The key to this plan is the fact that Tesla can ship software updates over the air, a first for the automotive industry which will have ramifications both for autonomy but also the major factor that drives automotive depreciation: wear and tear.
“Tesla is very effective at over the air updates,” Hodgson says. “Not only to maintain the functions with which the car was shipped, but also to add more functions over time.”
The combination of OtA software updates, future-proofed hardware, and the simpler architecture that goes electric cars relative to combustion engines is unique in the automotive industry. Teslas will get better self-driving capabilities over time, and they are have already made headway in reducing a car’s susceptibility to wear and tear. But is this trio of advantages enough for Tesla to transform cars into appreciating assets within 3 years?
“It’s quite a bold claim,” Hodgson says.
2. Proprietary Chips
A key part of Tesla’s plan to win on autonomy is its in-house chip, developed as part of the Hardware 3 suite that’s supposed to deliver hands-free self driving. These new chips replaced the chips Tesla used to get from a supplier, Nvidia’s Drive PX 2, which is capable of processing 20 frames per second. Tesla’s new chip, Musk claims, can process 2,000 frames with full redundancy and fail-over. This redundancy is key to ensuring the car reacts safely by reducing errors.
Tesla’s own hardware provides another key advantage, which is that Tesla can better tailor the software. But on the other hand, Nvidia is not exactly tapping out of the self-driving race. In fact, it is already producing more powerful chips than the Drive PX 2, the Nvidia DRIVE Pegasus which improves upon the Drive PX 2 by about 10-fold, and can enable level 5 autonomous driving, according to the company. Nvidia says 25 companies are working on robo-taxi like fleets using Pegasus chips.
All those other robo-taxi services are still using another company’s chips, and a less efficient chip than Tesla’s at that. But how long before other players catch up, or before Nvidia is able to match or beat Tesla’s operational efficiencies? James Wang, an analyst with Ark Invest, estimates that Tesla’s advantage over the competition is about four years.
3. More Cars on the Road
In addition to his chips, Musk also thinks Tesla will win autonomous driving by having more cars on the road. More cars on the road means visual and driver data to beam back to Tesla’s servers. According to CNBC’s account of the call, Musk has said that competitors like Waymo and GM’s Cruise can’t catch up in this regard.
These are all interesting, unique competitive advantages for Tesla, and they likely all explain why Musk has been so keen to pivot to autonomy when investors bring up Tesla’s finances. But being the first to deliver fully self-driving cars is not the same as being the first to deliver appreciating cars. And it’s not clear whether Musk will be able to do this simply through over-the-air software updates. After all, computers, tablets, and iPhones have been able to this for years.
“The iPhone was a big leap forward, because you had that scope for application frameworks and over the air updates over time,” Hodgson says. “But we still buy a new one every two years.”