Tesla and the Future of Autonomous Driving PDF

UV7757 Rev. Jul. 24, 2019 Tesla and the Future of Autonomous Driving...

UV7757 Rev. Jul. 24, 2019 Tesla and the Future of Autonomous Driving Janice Zhuk was an investor who for the past 20 years had success investing in new technology. Getting in on the ground floor meant being comfortable with uncertainty. Her newest interest—a fleet of shared robotaxis. As ideas around electric vehicles (EV) and autonomous vehicles (AV) moved into development, she closely followed just about everything in the works. With Toyota, Ford, and Tesla investing in EV and AV, Zhuk had much to follow, but Tesla was her favorite. How could Zhuk resist the emotion the firm’s flamboyant CEO, Elon Musk, ignited around AV and his claim that by 2020, Tesla would have a million self-driving robotaxis on the road?1 And with a billowing $2.35 billion stock and bond boost in early May 2019, it looked like Tesla had investors’ attention. Musk himself announced he would buy $25 million more in shares (102,880), pushing the deal to $2.7 billion. Three days later, the capital raise was closed—it had been oversubscribed. Reacting with less emotion, Zhuk kept data on each step artificial intelligence made toward self-driving. She focused on autopilot and the question of safety—since Tesla was transparent around some data collection, she checked in. How was it going? Zero-Emission Future Launched with the lofty goal of moving the world toward sustainable energy in car manufacturing in 2003, Tesla built only electric cars. Vehicles would be built by the company from the ground up (including battery cell production). In a former GM factory in Fremont, California, Tesla employed over 10,000 people who worked on components that made up its three car brands—Model S, Model X, and Model 3. The Model Y and one truck (Tesla Semi) were expected to hit the market by 2020. With a vertically integrated approach, Tesla made most of its own parts. Many of those parts were produced at Tesla’s net-zero energy Gigafactory in the desert of Nevada. By May 2019, Tesla was at a critical moment. While some strongly questioned Musk’s intention to become the first mass producer of EVs, others were skeptical that a mass market for Tesla’s pricey cars really existed— especially for the Model 3. The sales of EVs during the first quarter of 2019 fell below analyst expectations, and many were doubtful of Tesla’s claims around self-driving and safety. See Exhibit 1 for models and pricing and Exhibit 2 for quarterly sales. A key ingredient of Tesla’s strategy to justify the steep price of its vehicles was their improved ability to run on autopilot, with the hopes that in a not-so-distant future, the cars would 1 See the presentation made on “TESLA Autonomy Day,” available at “TESLA Autonomy Day Event,” YouTube video, 2:35:59, posted by “WC SciFi,” April 23, 2019, https://www.youtube.com/watch?v=tbgtGQIygZQ (accessed May 20, 2019). This case was prepared by Manel Baucells, Associate Professor of Business Administration, and Gerry Yemen, Senior Researcher. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2019 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an email to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Our goal is to publish materials of the highest quality, so please submit any errata to [email protected]. This document is authorized for use only in Prof. M P Ram Mohan & Prof. Viswanath Pingali's Senior Management Programme (SMP-BL13) 2024 at Indian Institute of Management - Ahmedabad from Apr 2024 to Oct 2024.  Page 2 UV7757 drive entirely by themselves. In fact, Tesla cars got better over time by simply getting software updates that enhanced the performance of the already-existing hardware. The backbone that made up Tesla’s autopilot technology included cameras, radar, ultrasonic sensors, data, and an onboard computer. In contrast to other automakers, Tesla’s self-driving cars relied almost entirely on cameras and radar instead of the more expensive lidar (light detection and radar) sensor technology. Autopilot safety features allowed automatic braking, warning for lane departures and collision possibility, parking assistance, obstacle-aware acceleration, and mapping technology. Musk stated repeatedly that autopilot was safer than a human driver and would only get better. Indeed, he was frustrated that if an autopilot-enabled Tesla crashed, it was front-page news, yet rarely was the over 100 road-crash deaths across the United States each day considered news.2 Of course, regulators and potential customers had concerns about the safety of autopilot. In October 2018, Tesla began releasing quarterly safety data in order to provide critical safety information about their vehicles (see https://www.tesla.com/VehicleSafetyReport). The page was updated quarterly, and as of July 2019, contained data on three quarters (see Table 1). Entries were the millions of miles it took to register one accident. For example, in Q2 2019, Tesla registered one accident for every 3.27 million miles driven in which drivers had autopilot engaged. For those driving without autopilot, Tesla registered one accident for every 2.19 million miles driven. And as Tesla noted, the National Highway Traffic Safety Administration’s (NHTSA’s) data registered one accident for every 436,000 miles driven.3 Table 1. Tesla’s quarterly safety data (in million miles per one accident). Tesla cars driving with Tesla cars driving autopilot without autopilot Q2 2019 3.27 2.19 Q1 2019 2.87 1.76 Q4 2018 2.91 1.58 Q3 2018 3.34 1.92 Source: Tesla Vehicle Safety Report, https://www.tesla.com/VehicleSafetyReport (accessed Jul. 19, 2019). The public seemed to have difficulty ironing out safety concerns around the autopilot. A class-action suit was filed two years earlier following a Model S accident claiming that the autopilot on roughly 47,000 vehicles was faulty. Later, the technology was deemed not at fault. Shortly before the capital infusion, the family of a former Apple engineer filed a lawsuit against the company after he lost his life hitting a highway median while using autopilot in his Tesla Model X. The car’s data was considered proprietary. As Zhuk reflected on robotaxis and safety, she wondered what to make of the tragic controversy and Tesla’s data. Should Zhuk subscribe to Musk’s claim that “No matter how you slice the data, it is unequivocal at this point that it’s safer to have autopilot on.”4 2Association for Safe International Road Travel, “Road Safety Facts,” https://www.asirt.org/safe-travel/road-safety-facts/ (accessed May 19, 2019). 3Tesla Vehicle Safety Report, https://www.tesla.com/VehicleSafetyReport (accessed May 20, 2019). 4 Tasha Keeney, “On the Road to Full Autonomy with Elon Musk,” Ark Invest, February 19, 2019, https://ark-invest.com/research/podcast/elon- musk-podcast (accessed May 10, 2019). This document is authorized for use only in Prof. M P Ram Mohan & Prof. Viswanath Pingali's Senior Management Programme (SMP-BL13) 2024 at Indian Institute of Management - Ahmedabad from Apr 2024 to Oct 2024.  Page 3 UV7757 Exhibit 1 Tesla and the Future of Autonomous Driving Price Structure In the summer of 2019, Tesla base prices included a gas-saving coupon and incentives. If consumers wanted self-driving capabilities, autopilot was required. The base price varied starting with rear-wheel drive and price increases for all-wheel drive, long range, and performance (e.g., quicker acceleration, performance wheels and brakes) features. Cars Base price Five-seat interior with autopilot Full self-driving capability Model 3 $32,15–$48,815 Included $6,000 Model Y $43,700–$56,700 $3,000 $5,000 Model S $72615–$95,615 Included $6,000 Model X $77,815–$97,815 Included $6,000 Source: Tesla, https://www.tesla.com/ (accessed Jul. 19, 2019). Exhibit 2 Tesla and the Future of Autonomous Driving Tesla Quarterly Sales and Cumulative Sales Sales in units Cumulative sales Q3 2015 11,603 11,603 Q4 2105 17,400 29,003 Q1 2016 14,820 43,823 Q2 2106 14,370 58,193 Q3 2016 24,500 82,693 Q4 2106 22,200 104,893 Q1 2017 25,000 129,893 Q2 2107 22,000 151,893 Q3 2017 26,150 178,043 Q4 2107 29,870 207,913 Q1 2018 29,980 237,893 Q2 2108 40,740 278,633 Q3 2018 83,500 362,133 Q4 2108 90,700 452,833 Q1 2019 63,000 515,833 Data source: “Number of Tesla Vehicles Delivered Worldwide from 3rd Quarter 2015 to 1st Quarter 2019 (in Units),” Statista, https://www.statista.com/statistics/502208/tesla-quarterly-vehicle-deliveries/ (accessed June 4, 2019). This document is authorized for use only in Prof. M P Ram Mohan & Prof. Viswanath Pingali's Senior Management Programme (SMP-BL13) 2024 at Indian Institute of Management - Ahmedabad from Apr 2024 to Oct 2024.