Amazon subcontracts their delivery services, so there are probably additional factors driving Teslas decision.
My guess is the insane liability a car accident can create. Trucking companies have had to pay out millions, even for accidents where they weren’t at fault.
A big part of Amazon's "Delivery Service Partner" program is that it creates many smaller work-forces rather than one big one, which prevents unionization. On the other hand, Amazon can probably afford accident insurance.
The fact that robot taxi's won't form a union makes this rather unlike Amazon DSP's. I suspect the article is correct. There simply aren't net profits here for operators.
Not really, kind of like Uber doesn't buy its own cars. The CyberCab owner provides the capital and parking spot and some maintenance, while Tesla takes a cut, just like Uber does. I'd be happy to have my car earn money for me while I'm away at office or away on a business trip.
Opportunity cost is the standard, not profitability. Companies generally try to emphasize their core competencies and outsource the rest. The Nvidia deal with Groq is an example. They spent $20B for Groq's inference technology while leaving their profitable cloud/services business alone.
Unfortunately Tesla's great accomplishments do not lie in the car space, but in the getting investments space. In finance. Which means they will have the profitability right, exactly, guaranteed.
Take the Tesla metal casting advance (single-press casting, or as Tesla calls is "Gigacasting"): it is mostly the result of investment, more specifically all other carmakers deciding they weren't willing to risk it, no matter how many papers said the simulations were correct. Tesla risked it, it worked exactly like the (mostly German made) theory and simulations said it was going to work, and now everyone and their mother (ie. even non-car companies) are using it. Result: Tesla has a patent on it, that nobody has licensed since they were working on it decades before the first Tesla engineer thought of it. The idea was literally available in CAD software before Tesla started to work on it (not that I want to claim there wasn't a LOT of design + validation + testing + integrating + ... work left to be done)
This principle is generally true for all Elon Musk companies, and most of their accomplishments/vision. SpaceX is not even close to the first to land a rocket, for example (that was McDonnel-Douglas). Nor were they the second, or the fifth. Oh and only one of the companies that attempted it before SpaceX needed 2 tries, all others succeeded immediately, or the company died, some succeeded, and the company still died. SpaceX, by contrast, needed 7 crashes before succeeding for the first time (one of their rockets never tried to land on account of blowing up during ascent, I'm counting that one), and 17 tries before they first tried to move it to production.
I'm not to say integrating everything, massively expanding the scope/scale of these applications, getting the investments, and getting it commercially operating isn't a gigantic accomplishment, but it is not inventing it at all.
Elon Musk's constant talk about inventing and "work from first principles" ... is therefore kind of total bullshit. He has never done that, and neither have his businesses.
you could make this same argument about any business and any mechanism that raises outside capital to expand.
If McDonald’s restaurants were profitable, they wouldn’t sell franchises. Except it’s been an incredibly successful way to raise capital and expand, for both franchisees and McDonalds.
If company about to IPO were a great investment, they wouldn’t IPO. Except the stock market has been an incredible mechanism for company and capital growth.
Hertz infamously came out of bankruptcy guns-blazing and purchased 100k cars for $4.2 billion and helped drive Tesla's market cap above $1 trillion in 2021
By 2024 they had begun dumping the EVs and reported a $2Bn loss as a result.[0]
The HTZ stock price has fallen 90%.[1]
Somehow TSLA is still trading in the neighborhood of that 2021 peak. Currently trading at a PE ratio of over 300, despite declining revenues[2].
He's an effective conman for those with money that needs investing. His track record is objectively bad[0] and that doesn't matter as long as he can say the right thing at the right time to keep the stock high and his investors happy and believing that the breakthrough is just around the corner.
The key thing here is liability. A McDonald’s franchisee is protected if the thing that makes someone sick was a result of bad food supplied by the McDonalds corporation. In the case of Tesla, irrespective of the self driving software the Tesla corporation provides, the “franchisee” is always the one liable.
Companies have to convince potential franchisees that they will be successful. Usually, the franchiser needs to already be wildly successful and have a playbook of how the franchisee will also be successful and how the franchiser will protect them, often via regional exclusivity.
I don't know if Tesla has proven that their own fleet is successful.
One problem in your analogy, for McDonalds, the franchisee is the one who actually operates the business.
For the Cybercab, Tesla is the one operating it via "Full Self Driving", their app, and the Tesla rideshare network. As the owner, the only thing you do is own it, insure it, have a place to park it, and take on the risk of what happens if the vehicle registered to you is in an accident. Clearly, a pretty one-sided assignment of risk.
They could, but running local operations isn't his forte, preference or interest, it seems. Even if he had a massive fleet of these, he'd have to navigate local laws, demand, operations and logistics.
His revealed preference is to run things centrally and at massive scales.
> They could, but running local operations isn't his forte, preference or interest, it seems. Even if he had a massive fleet of these, he'd have to navigate local laws, demand, operations and logistics.
Actually, while I still like your point there really is still a lot of operational work.
You need to clean, inspect, repair, insure, secure and charge the cars. To do so efficiently you will need to custom develop premises full of chargers and efficient charging and cleaning infrastructure.
That absolutely is operationally intense. Premises, permits, construction and then significant operations.
Maybe? It's how McDonald's runs things too. They make the food centrally and ship it to franchises. They take on brand risk, food logistics at scale and so on. Franchisees deal with local demand, operations, hiring, local laws and so on.
It's not an exact 1:1, but that seems to be the model here. Tesla does the things that can scale (FSD, manufacturing, etc.) and operators do the things that can't.
I think a more apt analogy is iPhone. You pay Apple for a brand new one, they make more money when you make in-app purchases.
Another really important issue is depreciation. You own the car for a few year and eat a cost of depreciation, and then figure out how to dig yourself out of the hole the way Hertz did. Similar to iPhone- you use one for 2+ years and then get a new version- you're also responsible if the phone breaks.
actually most franchise restaurants are not profitable and eventually go out of business. subway is famous for being basically a pyramid scheme that only makes money by fleecing aspiring restaurateurs. mcdonald's is an exception because they are primarily a real estate company and commercial landlord.
Most things go out of business. That's why the franchising model exists. Local owners know their local market best and they take a calculated risk on it.
From what I understand, McDonald's franchisees can make 5-15% of gross revenue of their location. That's a decent return, along the lines of other investments. As with all investments, you may lose too.
I may buy one if it works. It would pay for itself in about 7 years. Parking where I am at id about $50 a fay. If this thing can drop me off and go make me money it is a no brainer.
Does the pay off calculation include the frequent interior cleaning any rental car will need to be kept in service 24/7? Both normal wear and tear and spills, vomit, blood, etc that users are motivated by fees to pretend they didn't do until the next user or two after them reports it.
I don't know if that's true, especially when those "local governments" are cities with millions of people. You can get permission to operate in a small city, but if you can't drive outside of it, that really limits the usefulness. Small cities aren't a focal point of taxi services either.
Waymo didn't even bother dealing with any of the small cities in the San Francisco Bay Area, they worked directly with the state of California in order to expand their service area.
Vertical and integration like that has been very commonly and often tried in lots of different industries. Sometimes it works out, sometimes it doesn't. In the case of Tesla the work required to make a car and the work required to make a self-driving car are very similar. However, the work required to run a taxi company has very little to do with the labor required for use of the buffs. Thus, for Tesla and most car companies it is best to say I'm going to do what I do best and let someone else deal with that other hard part. It just loses too much focus to try and vertically
Taxis are a tiny niche in the transport market. They're certainly very profitable for the small number of people who run the companies, but they're a tiny niche and they will always be that way. There are too many advantages to owning your own personal automobile when you drive a lot. In turn, people who are driving their own automobile vehicle are the target of all car companies, taxies are an important niche but that is not enough to make a successful car company.
Let’s consider the only major example of the alternative: Waymo. Waymo is expanding rather slowly, and I imagine there are several factors. Building the cars is capital intensive. Adding a new market requires some regulatory work, and it also requires acquiring and building a lot for the cars to park at and charge at. And hiring people to charge them. (The labor cost is a drop in the bucket — there is no reason to put serious effort into automating this.)
Perhaps Tesla wants to focus on its actual strength: building the cars. And perhaps they want to outsource the regulatory issues and the problems when all the cars get stuck in the same power outage, etc.
(I’m charitably assuming here that Tesla can actually build a viable robotaxi.)
The idea that you buy a cycbercab to make money for yourself seems like a side benefit. Why should anyone own cars anymore anyway? We will all just use Uber; Tesla and Waymo need Uber; they both benefit.
Bitmain could produce and run all the bitcoin miners for themselves, but starting as a "startup" they need to raise funds to scale, hence selling to 3rd parties...
even to date after scaling to millions of units sold
The franchising itself isn’t the problem - it’s a valid way for a company to scale up a service.
The issue is that they’re rolling it out before Tesla’s self-driving software has been proven to be safe. And there are questions about whether a vehicle without a steering wheel or side mirrors is actually road-legal.
Additionally, I’m not sure what kind of checks Tesla is doing for the franchisees. Will they let them roll out a service anywhere they like, irrespective of whether FSD is optimized for those road conditions? Based on the way they’ve approached FSD with consumers, my guess would be yes.
The author misses the difference between cashflow and profit entirely.
Selling a car today gives Tesla the full profits of that hardware production today. Running that car as a robotaxi means that Tesla eats the costs of the hardware today in exchange for a larger total profit collected over several years.
So operating a fleet gives the company access to more long-term profits at the cost of decreasing the bank balance today (negative cash flow), where selling the cars lets the company fill the bank account right now (positive cash flow) at the cost of limiting long-term profitability.
The decision to prioritize immediate cash flow vs long term profits depends on the financial position and overall strategy of the company.
Tesla is not eating the cost of anything, they want to have their cake and eat it too. this will go as well for them as bunch of other things in recent years but just maybe this time people will realize they have been getting scammed for decade+
Tesla can do both. There will undoubtedly be a fee to join and use the Tesla ridesharing platform - I would expect that every Cybercab sold to require, at the minimum, the monthly $100 FSD subscription. On top of that, Tesla would take a cut off of all rides that cannot be negotiated.
Any franchisee contract would also need to have some sort of rules that prevent Tesla from running their own taxis themselves and undercutting their business, if it turns out to be too successful.
They allow 3rd party sellers in their platform and in their warehouses
There's many reasons for this but they include:
Somebody will compete in every segment: building the taxis, operating them, and vertically integrating them. Put another way - some people will buy taxis in this model either way, so Tesla is incentivized to participate in this also. That helps them get economies of scale.
It also of course minimize risk. But not just the obvious kind. It also minimises risk of a niche competitor taking the buy to own robotaxi market and from that wedge becoming a substantial competitor.
But also like Amazon - operators should worry about Tesla taking the data they have about most successful routes and using that to compete directly in the must lucrative identified markets.
people r tryin' to equate this to a franchise model, some the amazon 3rd party model.
nope - this is just Elon raising money without going to the stock market or government but directly to Elon worshipping idiots.
he benefits two ways - interest free Capex, then higher stock prices by reporting higher number of cybercabs on the road. & guess who takes a punch to the mouth - the Elon worshippers.
with the amazon model | franchise models there's shared risk - not exactly equal but shared risk.
with Elon - one person is eating the risk, while one person eats 90% of the gains.
55 comments
[ 0.21 ms ] story [ 39.1 ms ] threadMy guess is the insane liability a car accident can create. Trucking companies have had to pay out millions, even for accidents where they weren’t at fault.
The fact that robot taxi's won't form a union makes this rather unlike Amazon DSP's. I suspect the article is correct. There simply aren't net profits here for operators.
Uber doesn't buy the cars because it's not profitable.
They let the driver eat the depreciation, assume the capital risk, and deal with lemons and accidents.
No one drives Ubers thinking they're going to get rich, and I sure don't see companies buying up vehicle fleets to put into service on Uber.
Because it's a money losing proposition.
Why do you think Tesla is trying to also offload it onto suckers?
I bet his draft folder has a doc with the title “if US treasuries were profitable, US gov wouldn’t sell you one”
Take the Tesla metal casting advance (single-press casting, or as Tesla calls is "Gigacasting"): it is mostly the result of investment, more specifically all other carmakers deciding they weren't willing to risk it, no matter how many papers said the simulations were correct. Tesla risked it, it worked exactly like the (mostly German made) theory and simulations said it was going to work, and now everyone and their mother (ie. even non-car companies) are using it. Result: Tesla has a patent on it, that nobody has licensed since they were working on it decades before the first Tesla engineer thought of it. The idea was literally available in CAD software before Tesla started to work on it (not that I want to claim there wasn't a LOT of design + validation + testing + integrating + ... work left to be done)
This principle is generally true for all Elon Musk companies, and most of their accomplishments/vision. SpaceX is not even close to the first to land a rocket, for example (that was McDonnel-Douglas). Nor were they the second, or the fifth. Oh and only one of the companies that attempted it before SpaceX needed 2 tries, all others succeeded immediately, or the company died, some succeeded, and the company still died. SpaceX, by contrast, needed 7 crashes before succeeding for the first time (one of their rockets never tried to land on account of blowing up during ascent, I'm counting that one), and 17 tries before they first tried to move it to production.
I'm not to say integrating everything, massively expanding the scope/scale of these applications, getting the investments, and getting it commercially operating isn't a gigantic accomplishment, but it is not inventing it at all.
Elon Musk's constant talk about inventing and "work from first principles" ... is therefore kind of total bullshit. He has never done that, and neither have his businesses.
If McDonald’s restaurants were profitable, they wouldn’t sell franchises. Except it’s been an incredibly successful way to raise capital and expand, for both franchisees and McDonalds.
If company about to IPO were a great investment, they wouldn’t IPO. Except the stock market has been an incredible mechanism for company and capital growth.
By 2024 they had begun dumping the EVs and reported a $2Bn loss as a result.[0]
The HTZ stock price has fallen 90%.[1]
Somehow TSLA is still trading in the neighborhood of that 2021 peak. Currently trading at a PE ratio of over 300, despite declining revenues[2].
Really wish I understood the Elon Musk voodoo.
[0] https://www.cnbc.com/2024/01/14/hertz-makes-agile-decision-t...
[1] https://finance.yahoo.com/quote/HTZ/
[2] https://stockanalysis.com/stocks/tsla/revenue/
[0] https://en.wikipedia.org/wiki/List_of_predictions_for_autono...
That's what this is. You take on operating costs and you understand your local market. They own the brand.
I don't know if Tesla has proven that their own fleet is successful.
For the Cybercab, Tesla is the one operating it via "Full Self Driving", their app, and the Tesla rideshare network. As the owner, the only thing you do is own it, insure it, have a place to park it, and take on the risk of what happens if the vehicle registered to you is in an accident. Clearly, a pretty one-sided assignment of risk.
Also if Elon Musk has a demonstrable superpower it's the ability to raise capital. So they really could order 100,000 of these themselves.
His revealed preference is to run things centrally and at massive scales.
Doesn't Tesla operate its own dealer network?
You need to clean, inspect, repair, insure, secure and charge the cars. To do so efficiently you will need to custom develop premises full of chargers and efficient charging and cleaning infrastructure.
That absolutely is operationally intense. Premises, permits, construction and then significant operations.
It's not an exact 1:1, but that seems to be the model here. Tesla does the things that can scale (FSD, manufacturing, etc.) and operators do the things that can't.
Another really important issue is depreciation. You own the car for a few year and eat a cost of depreciation, and then figure out how to dig yourself out of the hole the way Hertz did. Similar to iPhone- you use one for 2+ years and then get a new version- you're also responsible if the phone breaks.
From what I understand, McDonald's franchisees can make 5-15% of gross revenue of their location. That's a decent return, along the lines of other investments. As with all investments, you may lose too.
Skeptical it will work as advertised, though.
[1] https://www.consumerhealthdigest.com/health-supplements/tesl...
Waymo didn't even bother dealing with any of the small cities in the San Francisco Bay Area, they worked directly with the state of California in order to expand their service area.
Taxis are a tiny niche in the transport market. They're certainly very profitable for the small number of people who run the companies, but they're a tiny niche and they will always be that way. There are too many advantages to owning your own personal automobile when you drive a lot. In turn, people who are driving their own automobile vehicle are the target of all car companies, taxies are an important niche but that is not enough to make a successful car company.
Let’s consider the only major example of the alternative: Waymo. Waymo is expanding rather slowly, and I imagine there are several factors. Building the cars is capital intensive. Adding a new market requires some regulatory work, and it also requires acquiring and building a lot for the cars to park at and charge at. And hiring people to charge them. (The labor cost is a drop in the bucket — there is no reason to put serious effort into automating this.)
Perhaps Tesla wants to focus on its actual strength: building the cars. And perhaps they want to outsource the regulatory issues and the problems when all the cars get stuck in the same power outage, etc.
(I’m charitably assuming here that Tesla can actually build a viable robotaxi.)
Essentially shift maintenance cost to the investors (all of it since in this case there are no drivers to share part of the cost).
even to date after scaling to millions of units sold
The issue is that they’re rolling it out before Tesla’s self-driving software has been proven to be safe. And there are questions about whether a vehicle without a steering wheel or side mirrors is actually road-legal.
Additionally, I’m not sure what kind of checks Tesla is doing for the franchisees. Will they let them roll out a service anywhere they like, irrespective of whether FSD is optimized for those road conditions? Based on the way they’ve approached FSD with consumers, my guess would be yes.
Selling a car today gives Tesla the full profits of that hardware production today. Running that car as a robotaxi means that Tesla eats the costs of the hardware today in exchange for a larger total profit collected over several years.
So operating a fleet gives the company access to more long-term profits at the cost of decreasing the bank balance today (negative cash flow), where selling the cars lets the company fill the bank account right now (positive cash flow) at the cost of limiting long-term profitability.
The decision to prioritize immediate cash flow vs long term profits depends on the financial position and overall strategy of the company.
Any franchisee contract would also need to have some sort of rules that prevent Tesla from running their own taxis themselves and undercutting their business, if it turns out to be too successful.
They allow 3rd party sellers in their platform and in their warehouses
There's many reasons for this but they include:
Somebody will compete in every segment: building the taxis, operating them, and vertically integrating them. Put another way - some people will buy taxis in this model either way, so Tesla is incentivized to participate in this also. That helps them get economies of scale.
It also of course minimize risk. But not just the obvious kind. It also minimises risk of a niche competitor taking the buy to own robotaxi market and from that wedge becoming a substantial competitor.
But also like Amazon - operators should worry about Tesla taking the data they have about most successful routes and using that to compete directly in the must lucrative identified markets.
nope - this is just Elon raising money without going to the stock market or government but directly to Elon worshipping idiots.
he benefits two ways - interest free Capex, then higher stock prices by reporting higher number of cybercabs on the road. & guess who takes a punch to the mouth - the Elon worshippers.
with the amazon model | franchise models there's shared risk - not exactly equal but shared risk.
with Elon - one person is eating the risk, while one person eats 90% of the gains.