Tesla’s Robotics Transition

Tesla is undergoing a critical business model transition, which represents another significant change for the company: to expand the market on top of which it operates.

A few years back, in 2020, when I looked at Tesla, I asked, “Is Tesla a car company?”

The Business Engineer is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

And already back then, my answer was the following:

In my piece about “non-linear competition,” I argued back then how the boundaries in the tech world are quite blurred as new markets develop continuously, and it’s tough to predict which one will be the next one that will eat them all while expanding on top.

Therefore, as a company operating in the tech industry, you must continuously transition your business model as you place bets on the future.

Indeed, the tech industry is super competitive; that’s what Andy Grove meant when, back in the late 1980s, he published “Only the Paranoid Survive.”

Look at Intel today, the market leader only 30 years ago, now an acquisition target.

Technology, which seems such a cool sector today, is also quite a wild ride, where the first-mover, in most cases, doesn’t make it to the other end of a market it opened in the first place.

It’s also a place where, in new markets, co-opetition is the rule, as technology markets operate with very complex dynamics and blurred boundaries where friend and enemy turn into “frenemies.”

When the future market gets dominated by startups turned into incumbents that benefit from winner-take-all, make the rule of the game until a new technology paradigm eats up the whole industry to go full cycle again.

That’s the wildness of the tech industry.

Indeed, in this context, as I’ll show you, Tesla is starting to become a general-purpose robotic company, and cars are only the start of this journey.

Yesterday, I highlighted the one that Meta is going through.

A quick reminder about Tesla’s several transitions before we jump to its next one!

The First Tesla: From an electric sports car to a general electric car

When companies like ​Tesla​ start rolling out their business models, they go through a phase called the “transitional business model.”

That model works in the short term to validate the market and enable the technology and its ecosystem to mature while still having a reality check.

Therefore, launching products will allow the company to test larger and larger segments of that same market.

You might want to keep an ambitious, long-term vision, but you have built-in reality checks in the short term.

As I always try to keep in mind, strategies take years to roll out, and they seem obvious, but only in hindsight.

Therefore, the transitional business model is a “market hook” that creates enough traction to keep financing your ambitious long-term goal.

A few years back, when Tesla was still going through a pretty rocky time, it was clear that Tesla’s strategy was fully rolling out via a transitional business model lens:

The Second Tesla: From electric cars to self-driving leader

It was 2006 when Tesla, with his co-founder Martin Eberhard, launched a sports car that broke down the trade-off between high performance and fuel efficiency.

Tesla, which had been building up an electric sports car that was ready to be marketed for a few years, finally pulled it off.

As Elon Musk explained Back in 2012:

In 2006, our plan was to build an electric sports car followed by an affordable electric sedan, and reduce our dependence on oil…delivering Model S is a key part of that plan and represents Tesla’s transition to a mass-production automaker and the most compelling car company of the 21st century.

Tesla had to find an effective market entry strategy that would enable it to validate the market.

That has worked out quite well!

Tesla has now reached an interesting point in its business model story, where it has become the most important EV player.

While automotive revenue decreased, its revenue decline is largely driven by price reductions, which significantly lowered the average selling price (ASP) despite a +2% YoY increase in deliveries.

Automotive revenue fell (-8% YoY in Q4, -6% YoY for FY 2024), but regulatory credits (+60% YoY) helped soften the impact.

However, Tesla saw strong growth in energy generation (+113% YoY) and services revenue (+31% YoY), which partially offset automotive losses.

The key takeaway?

Price cuts maintained market share but hurt revenue, while energy and services are becoming crucial growth drivers. Expect Tesla to keep refining its pricing and revenue mix going forward.

Yet, the company has reached the point of maximum efficiency, as it reduced its “COGS per Vehicle” to less than $35K.

Yet the key transition happening right now is in robotics, and seld-driving cars are only the start of this transition.

And cars are only the start!

The Third Tesla: From Self-driving Cars to general-purpose Robotics

If you think about it, cars, once they’re relying on self-driving, will be pretty much robots on the road.

That’s how you need to look at Tesla’s robotics business model transition.

Self-driving cars are the “market hook” to transition into something else.

In the meantime, Tesla is pushing an aggressive self-driving schedule, as Tesla made major AI and robotics advancements in 2024, strengthening its computing infrastructure with a 50k H100 cluster and 400% more AI training power.

This fueled FSD V13 (Supervised), trained on 4.2x more data. Safety improved, with FSD covering 5.94M miles between accidents—8.5x safer than the U.S. average.

Tesla plans to launch unsupervised FSD and a robotaxi service in 2025, alongside expanding FSD in Europe and China. Optimus Robotics also saw progress and moved toward pilot production.

The takeaway?

Tesla is pushing AI-driven automation hard, with 2025 set to be a pivotal year.

That will help Tesla build a new core defining the company in the next 20-30 years.

Will it pull it off? This is what the new transition looks like.

Musk’s true long-term ambition is to make “the machine that builds the machine.”

Recap: In This Issue!Tesla’s Shift to a New Business ModelTesla is undergoing a critical transition beyond EVs, evolving into a general-purpose robotics company.Cars are just the starting point—robotics and AI automation will define Tesla’s next 20–30 years.The Concept Behind Tesla’s StrategyThe Power of Transitional Business ModelsCompanies like Tesla start with a transitional business model before reaching their ultimate vision.This approach allows Tesla to:Validate market demand in stages.Refine technology and its ecosystem before full-scale expansion.Finance long-term innovation while maintaining real-world viability.Example: Tesla’s first step was launching a luxury electric sports car (Tesla Roadster) before moving to mass-market EVs (Model S, Model 3, etc.).Non-Linear Competition & Market EvolutionThe tech industry operates on non-linear competition, where market boundaries shift unpredictably.First movers often pioneer markets but don’t always dominate them in the long run.Co-opetition (cooperation + competition) is the norm—tech rivals compete and collaborate simultaneously.The industry follows a winner-take-all cycle, disrupted when a new technological paradigm emerges.Example: Intel dominated semiconductors 30 years ago, but is now struggling to adapt.Tesla’s Business TransitionsFirst Tesla: From Electric Sports Car to Mass-Market EVsTesla started as an electric sports car company (Roadster, 2006) but always aimed for mass-market EVs.2012: Model S launch marked Tesla’s transition into a mass-production automaker.The strategy: Create high-performance luxury EVs first → Use profits & learnings to scale down to affordable EVs.Second Tesla: From EVs to Self-DrivingTesla became the dominant EV player, but recent price cuts hurt revenue despite higher deliveries.2024 Financials:Automotive revenue fell (-8% YoY in Q4, -6% YoY for 2024) due to price reductions.Regulatory credits (+60% YoY) helped soften the impact.Energy generation (+113% YoY) and services revenue (+31% YoY) are becoming crucial growth drivers.Key Takeaway: Tesla is refining its revenue mix, relying more on services and energy.Third Tesla: From Self-Driving Cars to General-Purpose RoboticsTesla doesn’t just see cars as vehicles—once self-driving is perfected, cars become road-based robots.Self-driving is Tesla’s “market hook” to transition into AI-driven robotics & automation.2024 AI & Robotics Advancements:50k H100 cluster & 400% more AI training power.FSD V13 (Supervised) trained on 4.2x more data → 8.5x safer than U.S. average.Tesla plans to launch Unsupervised FSD & Robotaxi service in 2025.Optimus Robotics moved toward pilot production, signaling a broader robotics vision.Key Takeaway: Tesla is aggressively pushing AI-driven automation, with 2025 set to be a pivotal year.What’s Next for Tesla?Tesla is laying the foundation for an AI & robotics-powered future.The next 2–3 years will determine if Tesla successfully transitions beyond cars into robotics and automation.Can Tesla navigate this shift before new competitors emerge?

With massive Gennaro Cuofano, The Business Engineer

This is part of an Enterprise AI series to tackle many of the day-to-day challenges you might face as a professional, executive, founder, or investor in the current AI landscape.

The post Tesla’s Robotics Transition appeared first on FourWeekMBA.