At Tesla, Musk Moves To Get More Essential

"Elon Musk likes to say he doesn't want to be CEO of Tesla.

But the chief executive has spent the past weeks reworking the automaker in ways that make the person in the CEO chair even more crucial to its future.

He is making changes that de-prioritize Tesla's traditional car business. As he instead focuses on robotics and driverless cars, he has threatened to take his ideas on advanced tech elsewhere if he isn't given more ownership of the electric-car maker. Meanwhile, Tesla has begun a campaign to win shareholder approval in June to reauthorize his record $56 billion compensation package first approved in 2018. It was rescinded in January by a Delaware judge who took issue with the board's ties to Musk and how the deal was put together.

That pay was linked to milestones related to ambitious growth that Tesla met years ago and helped fuel its meteoric rise to become the first automaker to be valued -- for a while -- at more than $1 trillion.

Now, Musk is predicting a rebirth, in which Tesla is a much different company and the world is a much different place -- one resembling science fiction with humanoid robots and robotaxis.

Musk describes Tesla's potential as a mashup of Uber, Airbnb and Amazon.com's cloud business. In his telling, the company would own cars used as Cybercabs and sell vehicles to owners who then can deploy those as taxis as well. He envisions the cars' onboard computers, when not in use, being used for cloud services.

While many around the industry suspect Tesla is still far from rolling out vehicles that don't require humans behind the wheel, Musk has signaled that he is already preparing the company for that future today.

"Tesla will spend around $10B this year in combined training and inference AI, the latter being primarily in car," Musk tweeted recently. "Any company not spending at this level, and doing so efficiently, cannot compete."

He has boosted spending on AI development and has prioritized development of a robo-taxi, while also ordering sweeping layoffs, saying goodbye to several senior leaders in the car business and causing some investors to worry he isn't focused enough on next generation models for consumers to drive themselves.

This past week, he sent more shock waves through the car industry when he slashed much of the team responsible for Tesla's expansive charging network, known as Superchargers, and said he was slowing the build-out of new locations. Shares fell on the news Tuesday and are down 27% for the year through Friday.

Tesla began building the network more than a decade ago as it tried to address worries among early EV buyers about range.

Some investors had come to think of the network, which was being opened to rivals such as Ford Motor in highly publicized deals, as a growth engine for Tesla.

Last summer, Adam Jonas, an analyst for Morgan Stanley, estimated the potentially high-margin Supercharger business was worth about $20 billion to Tesla as car sales were expected to grow.

But then the music stopped.

Year-over-year sales in the first quarter fell for the first time since 2020, and analysts on average estimate Tesla may just eke out growth this year overall. That's a far cry from the 50% annual compounded growth target Tesla once was projecting. Musk is acting like he wants to leapfrog a race-to-the-bottom battle for making cheap mainstream EVs for what he says can be a high-margin AI business.

For Tesla's investors, it is a "3 Body Problem," or as fan's of the Netflix show are familiar with, an issue in physics where three celestial objects near each other disrupt the ability to predict their rotation.

In this case, Tesla faces an EV market contending with increased competition in China and growing popularity of hybrids in the U.S., the promise of AI technology upending business models, and Musk's own erratic ways -- three forces that make it hard to predict where the company is headed.

"The EV industry in our view is entering a commoditized dark age, while the AI and robotics industry is entering a renaissance," Jonas, long bullish on Tesla, told investors Thursday. "Tesla's decision-making around what it does less of and what it does more of should be seen through this lens."

Put another way, instead of trying to chart a course through massive colliding obstacles, Musk is trying to change solar systems all together.

"Not quite betting the company, but going balls to the wall for autonomy is a blindingly obvious move," Musk tweeted. "Everything else is like variations on a horse carriage."

The biggest potential for Tesla, Musk said, is how AI can be used in humanoid robots, dubbed Optimus, for application in homes as housekeepers or factories as workers.

But not without making Musk happy.

Even before the judge threw his compensation package into disarray, Musk surprised investors earlier this year by saying he didn't feel comfortable working on AI and robotics at Tesla without having a greater ownership stake -- 25%. He currently directly holds about 13%.

So, he wants the pay package he was previously given and more -- maybe through a share buyback.

Without him, Musk suggested to investors, Tesla might not be able to do Optimus. "If I got kidnapped by aliens tomorrow, Tesla will solve autonomy, maybe a little slower, but it would solve autonomy for vehicles at least," he said. "I don't know if we would win . . . with respect to Optimus or with respect to future products."" [1]

1. Analysis: At Tesla, Musk Moves To Get More Essential. Higgins, Tim.  Wall Street Journal, Eastern edition; New York, N.Y.. 04 May 2024: A.1.