This month could be decisive for Tesla

Tesla (NASDAQ: TSLA) has received quite a lot of press coverage in recent months, with most of the media reporting on the company’s problems in China. But there is another story that deserves just as much investor attention – the story of the company’s relentless pursuit of the world’s best self-driving car.

Tesla car model 3

Both of these stories can have short and long term impacts on stocks. Here’s what shareholders need to know about the company right now:

1. Problems in China

In early 2019, Tesla began construction on its Gigafactory in Shanghai, becoming the first foreign automaker to operate a wholly-owned plant in China, the world’s largest electric vehicle (EV) market.

During the early years, everything went very well. Tesla unveiled its first Chinese-made Model 3 at the end of 2019. And despite the coronavirus pandemic, the company ramped up production of the Model 3 and launched the Model Y in Shanghai last year. But the problem arose in April 2021 when an angry customer protest over quality and safety issues with Tesla vehicles at the Auto Shanghai Expo went viral.

This sparked a backlash from consumers in China, with people turning to social media, expressing anger over Tesla’s perceived arrogance and quality issues. The company issued a public apology shortly thereafter, promising to establish a customer satisfaction division in the region.

Then, in the month of June of this year, Tesla ran into yet another speed bump. After an investigation, the Chinese regulator said the cruise control system in Tesla vehicles could be inadvertently activated, resulting in unexpected acceleration. To address this issue, affected customers had to update their cruise control software remotely (i.e., without a trip to the dealership). In total, this problem affected more than 285,000 vehicles.

This was bad news for Tesla, especially after the recent massive consumer backlash. But in reality, things do not look so bad at all – after the fall in April, the demand for Tesla cars in China has recovered, as evidenced by the growth in sales on a monthly basis:

Tesla Sales in ChinaMarch 2021April 2021May 2021June 2021
Monthly change94%(67%)88%28%

China is currently the second largest market for Tesla after the United States, but CEO Elon Musk believes it will eventually become the largest. And given that the country currently represents almost half of the global electric vehicle market, this opinion is quite justified.

Between January and May 2021, Tesla captured 12% of the EV market in China, ranking third behind SAIC-GM-Wuling Automobile and BYD Auto. Investors must keep track of these numbers – if Tesla wants to become the long-term global leader in the EV market, it must be a major player in China.

2. Complete software for offline management

Since the beginning of 2019, all Tesla vehicles have been equipped with hardware version 3.0, a third-generation supercomputer that supports autopilot and full self-driving (FSD) software. Notably, the processor used in this hardware is 1000% more powerful than the previous generation, and Musk called it “[объективно] the best processor in the world. “

Of course, Elon Musk is characterized by bold statements. During the company’s battery day event last September, he told investors, “In about three years, we are confident that we can create a very attractive $ 25,000 electric vehicle that will also be fully autonomous.”

Tesla moved a little closer to that goal in early July by releasing version 9.0 of its FSD software into beta testing. Musk tweeted the launch in April, saying: “FSD V9.0 Beta will amaze you”… Musk also said the new software provides better safety performance with clear vision (from external cameras) rather than radar. vision plus

That’s what makes this debut so momentous – FSD 9.0 is the first software release to no longer use input from radar sensors. This strategy sets Tesla sharply apart from competitors such as General Motor’s Cruise, Intel’s Mobileye, and Alphabet’s Waymo, which rely on radar and lidar to produce centimeter-accurate maps.

Tesla believes that this kind of “cartographic” approach (using radar and lidar sensors) is flawed, citing its lack of scalability. For example, self-driving cars built with map-based technology will only operate safely on carefully mapped roads. And even then, the slightest inconsistency of the map with reality (for example, a large piece of garbage) can lead to chaos.

Investors should pay close attention to how well (or poorly) version 9.0 FSD performs. This could be a turning point in the development of the company.

The review uses materials from the resource The Motley Fool

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