The Potential of Tesla’s AI Technology and Custom Silicon

The Potential of Tesla’s AI Technology and Custom Silicon

Tesla, the renowned electric car maker, experienced a significant increase in its shares by 10% during the first half of trading on Monday. This surge came after an upgrade from Morgan Stanley, which included an optimistic note envisioning Tesla’s potential in selling AI technology to other automakers. Additionally, the note highlighted the company’s cost-saving strategy of utilizing its own GPUs instead of relying on chip supply from Nvidia. The analysts at Morgan Stanley advocated for viewing Tesla not only as an electric car manufacturer but also as a technology company. With this change in perspective, the firm decided to set the new target price for Tesla’s shares at $400, an increase from the previous target of $250. One of the key drivers behind this upgrade was the recognition of Tesla’s Dojo supercomputer project and its custom silicon. According to Morgan Stanley, the successful implementation of Dojo could potentially add up to $500 billion to Tesla’s long-term value.

Dojo, a project pursued by Tesla, holds immense potential for assisting with AI machine learning and computer vision training purposes in the domain of autonomous cars and robotics. By utilizing video clips and data from its customers’ vehicles, Tesla aims to improve its existing software and develop new features. Adam Jonas, a highly bullish Tesla analyst, emphasized the transformative nature of Dojo, highlighting its applicability not only in the auto industry but also in areas such as robotics, healthcare, and security. Jonas expressed confidence that once Tesla achieves significant progress in autonomy and software, third-party Dojo services can become the catalyst for the next phase of Tesla’s growth story.

Morgan Stanley also expects Tesla to generate $2,160 in recurring revenue per month from its vehicle owners by 2030. This revenue is anticipated to come from services enabled by Dojo and subscription-based software, including self-driving systems (not currently offered by Tesla), vehicle charging services, maintenance, software upgrades, and content yet to be developed. The potential for these revenue streams indicates a shift beyond the traditional model of selling cars and opens up new avenues for ongoing customer engagement and profitability.

While Morgan Stanley’s note painted a positive picture for Tesla, it is important to consider the risks and challenges the company may face. Deutsche Bank, another firm with a bullish outlook on Tesla, pointed out potential risks in the third quarter. These risks include planned summer production shutdowns, which could impact both production and deliveries and lead to inventory discounts. Moreover, limited positive cost offsets during this period could further affect Tesla’s financial performance. These challenges may put pressure on the company, requiring efficient management and strategic decision-making to mitigate their impact.

In response to the anticipated challenges, Tesla recently reduced the prices of its electric vehicles. The company also adjusted the price of its premium driver assistance system, Full Self-Driving (FSD), from $15,000 to $12,000 in the U.S. market. These price cuts, along with other factors, had negatively affected Tesla’s share price in recent weeks. However, the Morgan Stanley note on Monday provided a boost to investor confidence, leading to a mid-day spike in Tesla shares, surpassing the $272 mark.

Tesla’s foray into AI technology and the development of custom silicon through projects like Dojo highlight the company’s ambition to innovate beyond traditional electric car manufacturing. By positioning itself as a technology company, Tesla aims to create new revenue streams and reinvent the automotive industry. While risks and challenges persist, the potential for growth can pave the way for a new era of transformative technologies and advancements. As Tesla continues to push the boundaries of what is possible, the world watches with anticipation for the next chapter in its remarkable journey.

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