Tesla’s Dojo supercomputer could boost its market value by $500 billion, Morgan Stanley says

Tesla’s stock price soared more than 6% on Monday after a bullish note from Morgan Stanley analysts predicted that the company’s Dojo supercomputer could add $500 billion to its market value. The analysts said that Dojo, which is designed to train artificial intelligence systems for Tesla’s driver-assistance and self-driving features, could open up new revenue streams and addressable markets for the electric vehicle maker.

What is Dojo and why is it important for Tesla?

Dojo is an in-house supercomputer that has been in the works at Tesla for some five years. It is expected to be one of the most powerful supercomputers in the world, capable of processing vast amounts of data from Tesla’s fleet of vehicles. Tesla CEO Elon Musk has said that Dojo will enable Tesla to achieve “vision-only” self-driving, meaning that it will rely solely on cameras and neural networks, without the need for radar or lidar sensors.

Tesla’s Dojo supercomputer could boost its market value by $500 billion, Morgan Stanley says
Tesla’s Dojo supercomputer could boost its market value by $500 billion, Morgan Stanley says

Dojo is also expected to help Tesla improve its Autopilot system, which offers various levels of driver assistance, such as lane keeping, adaptive cruise control, and automatic lane changes. Tesla has been rolling out a beta version of its “Full Self-Driving” (FSD) software to select customers, which aims to enable the car to handle more complex driving scenarios, such as navigating intersections, roundabouts, and city streets. However, FSD is not fully autonomous and still requires human supervision and intervention.

Tesla has not revealed much details about Dojo, such as its specifications, launch date, or cost. However, Musk has said that it will be based on a custom chip architecture that is optimized for neural network training. He has also hinted that Dojo will be unveiled at Tesla’s next AI Day, which is expected to take place in early 2024.

How could Dojo add $500 billion to Tesla’s market value?

According to Morgan Stanley analysts, led by longtime Tesla analyst Adam Jonas, Dojo could fuel a massive increase in Tesla’s market value by unlocking new revenue streams and addressable markets that extend well beyond selling vehicles at a fixed price. The analysts compared the potential of Dojo at Tesla to the “same forces that have driven” Amazon Web Services (AWS) to propel Amazon’s profitability to new heights.

The analysts said that Dojo could enable Tesla to offer various software and services related to self-driving, such as:

  • Robotaxi: Tesla could leverage its network of vehicles and owners to offer a ride-hailing service that competes with Uber and Lyft. Musk has said that he expects robotaxis to generate significant income for Tesla and its customers in the future.
  • Data: Tesla could monetize the data collected from its vehicles and use it to improve its products, services, and customer experience. The analysts said that data could also be sold or shared with third parties, such as insurers, regulators, or advertisers.
  • Software: Tesla could offer software upgrades and subscriptions to its customers, such as FSD or premium connectivity. The analysts said that software could also be licensed or sold to other automakers or mobility providers.
  • Hardware: Tesla could sell or lease its Dojo hardware or chips to other companies or organizations that need high-performance computing for AI applications.

The analysts estimated that these software and services businesses could generate $200 billion in annual revenue for Tesla by 2030, with a 60% operating margin. They also said that these businesses could increase Tesla’s addressable market from $2 trillion (the global auto market) to $10 trillion (the global mobility market).

The analysts concluded that Dojo could add $500 billion to Tesla’s market value, which was around $789 billion as of Friday’s close. They also raised their price target for Tesla from $900 to $1,200 per share, implying a 28% upside from the current level.

What are the challenges and risks facing Tesla and Dojo?

While the Morgan Stanley analysts were optimistic about the potential of Dojo and Tesla’s software and services businesses, they also acknowledged some of the challenges and risks facing the company. These include:

  • Competition: Tesla faces increasing competition from other automakers and tech companies that are investing heavily in electric vehicles and self-driving technologies. Some of these competitors have more resources, experience, or partnerships than Tesla.
  • Regulation: Tesla’s self-driving ambitions are subject to regulatory approval and scrutiny in different markets. The company has faced criticism and investigations for some of the crashes and incidents involving its Autopilot system. The company has also been accused of misleading customers and regulators about the capabilities and limitations of its FSD software.
  • Execution: Tesla has a history of missing deadlines and overpromising on its products and features. The company has not delivered on some of its previous promises, such as coast-to-coast self-driving or solar roof tiles. The company has also faced production delays and quality issues with some of its vehicles.
  • Customer satisfaction: Tesla’s customer loyalty and satisfaction may be affected by its software and service offerings. The company has faced complaints and lawsuits from some of its customers who have paid for FSD but have not received the promised features or updates. The company has also raised the price of FSD several times, which may deter some potential buyers.

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