Tesla Ushers in AV 2.0 Era
March 31, 2024
This Week in The Autonomy Economy, The Road to Autonomy Index returned 0.64%, Tesla ushered in the AV 2.0 era, legislators in California are continuing to try and effectively ban autonomous vehicles and New York City opens the door to testing of autonomous vehicles.
It was a busy Q1 in the autonomy economy. During the quarter, The Road to Autonomy Index outperformed the market.
In Q1 2024, The Road to Autonomy Index returned 11.80%, S&P 500 returned 10.16% and NASDAQ 100 returned 8.49%. The Road to Autonomy Index outperformed S&P 500 by 1.64% and outperformed NASDAQ 100 by 3.31%.
As we enter Q2 2024, the autonomy economy continues to show signs of strength. Over 51% of CFOs surveyed in the annual The CFO Survey, a collaboration of Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta said over the last 12 months their companies have implemented software, equipment, and/or other technology to automate tasks.
This is a number that we that we only expect to grow over the coming quarters as 86.5% of CFOs cite cost savings are the reason behind the implementation of automation. While 59.6% cite quality control, followed by employee experience at 50.7%.
Even though a majority of companies are embracing and implementing automation, 59.2% of the CFOs surveyed stated they have maintained hiring.
While this data is focused on the U.S. market, we expect the trend of companies embracing automation and autonomy to become one of the largest global trends over the next decade.
The Future is Bright. The Future is Autonomous.
Tesla is a The Road to Autonomy Index component company
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Tesla Ushers in AV 2.0 Era
Tesla FSD 12 is an end-to-to-end neural network approach to autonomous driving. FSD 12 marks the being of a new era in autonomy, the AV 2.0 era. No more human coding, the neural nets are now learning and training the system how to drive and handle situations on the road. The neural net approach unlocks performance, efficiency and scalability.
With this approach, Tesla will be able to scale autonomous driving for a fraction of the cost of their robo-taxi competitors. Potentially unlocking billions of dollars in revenue and flipping the robo-taxi industry on it’s head when Tesla’s approach to autonomous driving is validated.
If and when their approach becomes validated, Tesla could once again explore licensing FSD. At this stage, analysts are generally down on the idea.
While we believe Tesla is a leader in software and services, as discussed in our 11/13/23 report, “Contextualizing Tesla’s AI and FSD opportunities”, we do not currently expect the company to provide its software at scale to other OEMs at least in the near-term, and the company suggested on the 4Q23 call that licensing FSD software to other OEMs does not have momentum currently. Tesla also said that its Dojo technology was doing AI training, but also described the project as a long-shot (but one that had a very high potential return if successful).
– Mark Delaney, Analyst, Goldman Sachs January 24, 2024 Research Note
We take the opposite approach to Tesla licensing FSD. It very well could happen sooner than analysts are expecting, because consumers are going to demand “autonomous driving” features in their vehicles over the coming years.
If Elon Musk’s prediction holds true and consumers demand “autonomous driving” features, traditional OEMs are going to have to pivot and do a deal with Tesla as they are historically not very good at developing autonomous driving software.
If an OEM does not want to do a deal with Tesla and license FSD, could they turn to Wayve? Wayve is taking a similar approach to Tesla with their end-to-to-end neural network approach to autonomous driving.
Could Wayve and Tesla be two of the largest licensors of autonomous driving software in the future? Or could Waymo enter the sector and license an AV 2.0 version of the Waymo driver?
Anything is possible. What we do know is that Tesla has just ushered in the era of AV 2.0 with the wide release of FSD 12.
To accelerate the adoption of FSD, on March 25th Elon Musk announced on X; all US cars that are capable of FSD will be enabled for a one month trial this week.
A one month trial of FSD opens the door to autonomous driving capabilities (even though FSD is currently an SAE Level 2 system that requires drivers to pay attention at all times). As the one month trial gets underway, we will be watching the uptake and retention rates. If the retention rates are high, Tesla just unlocked a new multi-billion dollar revenue stream.
Our take: Tesla is going to solve autonomous driving. It’s only a matter of when, not if.
Tesla is a The Road to Autonomy Index component company
Here We Go Again. The Effort to Effectively Ban Autonomous Vehicles in California Continues
First it was an effort to ban autonomous trucks in California, now it’s an effort to give local governments control over autonomous vehicles. Giving local governments regulatory authority over AVs would lead to an effective ban on autonomous vehicles in California.
An autonomous vehicle would not be able to travel over city limits to another city, as that city could have their own autonomous vehicle ordinance that would be in conflict. In Los Angeles, an autonomous vehicle would not be able to drive from downtown LA to the beach, as the vehicle would pass through the cities of West Hollywood, Beverly Hills, Santa Monica and Malibu.
Today when a car passes through one of these cities, there is no issue. Why should an autonomous vehicle be subject to a different set of standards? What is to stop the California State Legislature from giving control over all forms of transportation to local governments? Would each city get its own DMV complete with it’s own set of laws?
SB915 is bad for California’s economy. It’s a bill that if passed and signed by Governor Newsom will effectively ban an entire industry. An industry that is crucial to the future of California’s economy. If California effectively bans autonomous vehicles, what’s next? GPUs and AI?
Our take: It’s a difficult time to be a business in California. That is why businesses are fleeing the state in droves. If this trend continues, it’s only a matter of time until Visa and Wells Fargo pack up and move east.
New York City Opens the Door to Autonomous Vehicles
On March 28th, Mayor Adams of New York City released the city’s requirements for testing autonomous vehicles. The framework currently only covers the testing of autonomous vehicles. While testing in New York City, all autonomous vehicles must have a safety driver behind the wheel.
The highlighting of a “With Trained Driver Behind Wheel at All Times“ in the sub-heading of the announcement is a clear political overture to special interests. While we understand the politics of the overture, it could have long-term negative economic consequences for New York’s economy.
NYC is the home of the American Dream. Frank Sinatra once sang, “If I can make it there, I’ll make it anywhere, it’s up to you, New York, New York. New York, New York, I want to wake up in a city that never sleeps”.
We want to wake up in a city that has a growing economy. We want to wake up in a city that is full of autonomous vehicles providing safe and reliable service to millions of New Yorkers. We want New York to be the city that welcomes everyone. Let welcoming fully autonomous vehicles be the city’s Ellis Island 2.0 moment.
Mayor Adams, do not stand in the way of progress. Instead, lean into progress and help New York usher in the autonomy economy by providing a clear path to the operation of fully autonomous vehicles in the city that never sleeps.
Our take: It is going to be a long-time before fully autonomous vehicles are operating in New York.
Social Buzz
Horizon Robotics Files for an IPO in Hong Kong
VW’s autonomous driving software partner, Horizon Robotics has filled to go public on the Hong Kong Stock Exchange. The filling is extremely vague and lacking in material details.
Redacted was mentioned 257 times in the 540 page filling. If you are interested, you can read the filling here. In the filling it became very clear that Horizon Robotics is VW’s autonomous driving partner for China. Outside of that, the filling raised more questions than answers about the company.
Our take: VW needs to shine a brighter light on their autonomous driving strategy and layout a clear strategy for shareholders.
Off the Streets and Off the Field
Cruise is no longer the patch sponsor for the San Francisco Giants. When the deal was first announced last year, we thought it was a great way to build the Cruise brand and elevate the entire autonomous vehicle industry. That didn’t happen. Instead the Cruise patch as been replaced by a Chevrolet patch with a focus on EVs.
Our take: GM went from focusing on AVs to EVs. It’s now all about EVs for GM as they work to reboot Cruise in Texas.
GM is a The Road to Autonomy Index component company
6 Million Tesla’s and Counting
Tesla is the clear leader in the design, development and manufacturing of electric vehicles.
Our take: When millions of these Teslas become autonomous, Tesla becomes even a bigger business.
Tesla is a The Road to Autonomy Index component company
The Road to Autonomy Index® / Weekly Performance
The Road to Autonomy Index® is a high-definition lens into the emerging world of autonomous vehicles. It is the world’s first and only pure-play index designed to measure the performance of the autonomous vehicle/truck market.
For the week of March 18, 2024, The Road to Autonomy Index returned 0.64%, S&P 500 returned 0.24% and NASDAQ 100 declined 0.36%. The Road to Autonomy Index outperformed the S&P 500 by 0.40% and outperformed the NASDAQ 100 by 1%.
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