Tesla's Self-Driving Technology: Revolutionizing the Future of Transportation

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The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Hudson Square Investment Management LLC. The author is a managing partner at Hudson Square Investment Management, and the fund holds a position in Tesla. This article is intended for informational purposes only and should not be construed as investment advice. Readers should conduct their own research and consult with a financial advisor before making any investment decisions. The author Andy Hamer and Hudson Square Investment Management LLC are not responsible for any losses or damages arising from any actions taken based on the information provided in this article. 

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Tesla’s ongoing advancements in self-driving technology have positioned the company at the forefront of the autonomous driving revolution. With the deployment of Full Self-Driving (FSD) Version 12, Tesla has made significant strides in AI-driven autonomous systems, which are expected to have profound implications for the future of transportation.

On its latest earnings call, the company unveiled its latest advancements in FSD technology, potentially marking one of the largest inflection points the car industry has ever seen. FSD Version 12.3.5, powered by pure AI-driven capabilities, represents a paradigm shift in how we interact with cars. One of the critical aspects of FSD Version 12 is its extensive deployment and training data. Tesla has rolled out this version to over 1.8 million vehicles in North America, and the system has accumulated more than 300 billion miles driven. This vast amount of data is crucial for refining the AI algorithms and improving the system's performance over time. Tesla’s progress is rapid and exponential, with more frequent updates to the software being released over time. The company will make FSD even more accessible through a subscription model, priced at only $99 per month. Tesla’s software subscription is cancellable on a monthly basis and will be easier to manage than a Netflix subscription. Future updates, such as FSD Version 12.4 and 12.5, are expected to bring substantial improvements, further increasing the system's reliability and safety.

Tesla's approach to self-driving technology places a strong emphasis on safety. The company is working towards proving that its autonomous driving system is safer than human drivers. Musk highlighted that if autonomous cars demonstrate half the accident rate of human-driven cars, it would be difficult for regulators to ignore the benefits of widespread deployment. The goal is to reach a point where stopping the deployment of autonomous cars would be equivalent to causing harm, given the safety improvements they offer.

The pathway to regulatory approval for unsupervised FSD in the U.S. and other markets is gradually being paved. Several states have already adopted autonomous vehicle laws, and ongoing data collection from autonomous operations in cities like San Francisco and Los Angeles is helping to guide broader regulatory acceptance.

Musk has announced that the company has massively expanded its AI infrastructure and capabilities and will further showcase its Robotaxi in August. Clearly, Tesla is doubling down on the technology and “has been investing in the hardware and software ecosystems necessary to achieve vehicle autonomy and a ride-hailing service.” If Tesla’s CEO Elon Musk is correct about his assumptions on the development, deployment, and adoption of FSD, its growth will become a reality sooner than current industry projections. Having experienced Tesla’s FSD myself and its rapid rate of improvement in real life, I realize that this development is nothing short of a game changer for the car industry. Just watch this YouTube video @Tesla FSD 12.3.6 Drives to the Apple Store and see for yourself.

Tesla's vision extends beyond transportation, with the potential for its fleet of autonomous vehicles to serve as a distributed AI compute network. With millions of vehicles equipped with powerful inference computers, Tesla could leverage this idle compute capacity for various applications, akin to how Amazon Web Services (AWS) monetizes excess compute resources. This innovative approach could create new business opportunities and significantly enhance Tesla's value proposition.

The company’s plans are aggressive, the roll out is not without controversy; short-term setbacks are expected. The company is currently also facing a lawsuit over its self-driving claims. Yet, the technology has the potential to disrupt the industry the same way the iPhone disrupted the cell phone market, Airbnb disrupted the hotel industry, and the rise of the automobile itself changed the transportation industry.

Elon Musk and Tesla have been massively underestimated before by industry incumbents. Musk  has defied skeptics and reshaped the entire auto industry through the introduction of high performance and reliable electric cars (EV). In Q1 2024 electric vehicles held a 7% market share in the United States with Tesla accounting for 52% of sales! This development is extraordinary for an industry that essentially did not exist in 2014. Since then Elon Musk has moved on to building Tesla from a $3 billion revenue and loss-making company in 2014 to a $97 billion revenue and highly free cash flow generating company in 2023, increasing Tesla’s vehicle sales from 35,000 in 2014 to 1.81 million vehicles sold in 2023!

While many incumbent players remain embroiled in debates over the future of auto technology, the trajectory is clear: EVs are the future. Other engine technologies continue to decline.

Chinese automaker BYD recently made headlines with record-breaking sales of over 3 million electric vehicles globally in 2023, solidifying its position as another leading electric car manufacturer. Consequently, the most likely competitor for Tesla in the foreseeable future is expected to emerge from China. While EV adoption might slow over the coming quarters for various reasons unrelated to Tesla, I firmly believe that today we stand at another pivotal juncture. Once more, Elon Musk finds himself grossly underestimated. Yet, change is coming again. FSD technology is becoming a reality. Its implementation will not only revolutionize our approach to driving, but also redefine the very essence of car ownership. It will change usage patterns, impact car valuations, reshape infrastructure needs, and transform service industries. 

The automotive industry will change dramatically in the coming years, with Tesla at the forefront of change. Tesla’s ambitious plans to deploy a massive fleet of autonomous vehicles are well underway. It will allow users to add or remove their cars from the fleet as desired. This model, similar to a combination of Airbnb and Uber, is expected to optimize vehicle usage and generate even more additional revenue streams for Tesla.

The company is establishing a huge competitive advantage that will only grow stronger over time. Meanwhile with each additional Tesla mile driven, the barrier to entry for competitors will become increasingly difficult to overcome, making it ever more challenging if not impossible for others to catch up.

Tesla's relentless pursuit of full self-driving technology exemplifies the seismic shifts occurring within the automotive sector. The development and widespread adoption of autonomous vehicles have the potential to revolutionize not only how we commute but also the very fabric of our economy. As Tesla continues to refine its technology and expand its fleet, the potential for autonomous vehicles to transform transportation and other sectors becomes increasingly evident.

Conclusion: The rapid progress Tesla is making in FSD technology is bound to reshape the transportation industry in the coming years. Change is likely coming faster and with greater impact than what the market currently expects. Once again, Elon Musk and Tesla are being underestimated. The current innovation gaps in the industry are too significant to ignore. Industry players must urgently recalibrate their approach to innovation, invest in transformative technologies, and foster an environment conducive to entrepreneurship and technological advancement. Tesla’s advancements in FSD technology are not just incremental improvements; they represent a fundamental shift in the transportation paradigm, heralding a future where autonomous vehicles are the norm, and human driving becomes a relic of the past.

Andy Hamer

Managing Partner

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