Tesla Bull Explains Why Elon Musk's xAI Is Critical To EV Maker's Autonomous Ambitions

A Tesla, Inc. TSLA bull on Wednesday weighed in on the relationship between the electric-vehicle company led by Elon Musk and the billionaire’s artificial intelligence company xAI.

The Tesla Analyst: Morgan Stanley analyst Adam Jonas reiterated an Overweight rating and $310 price target for Tesla shares.

The Tesla Thesis: Training and simulation are the common denominators between Tesla and xAI, and these two are “deterministic” to Tesla’s future in robotics, autonomy and manufacturing, said Jonas in a note. AI execution is vital to Tesla’s upside, the analyst said, adding that the Musk-led company’s future valuation is highly dependent on its ability to develop, manufacture and commercialize autonomous technologies, ranging from transportation to humanoids.

The analyst also noted that training and simulation have been revolutionizing robots as accessing supercomputing resources for training and simulation is critical to optimizing autonomous software/models and hardware.

He said that xAI was established to attract top-tier AI talent who might not otherwise be interested in working for Tesla, the electric vehicle company. The AI company is investing billions of dollars toward assembling advanced computing resources which is beneficial to Tesla, he added.

Jonas noted that xAI’s massive compute cluster named Colossus has recently been brought online in the Memphis area, and it consists of 100,000 Nvidia Corp.’s NVDA H100s. Musk plans to double it to 200,000 H100 equivalent, he said.

Tesla’s rival in robotaxi operations, Alphabet, Inc.’s GOOGL GOOG Waymo, has been aggressively expanding its fleet size, city deployments and technological/ network partnerships of late, Jonas said. “Waymo's recent resurgence is a reminder to investors that the road to AV supremacy is a race for data, computing, capital and talent,” he said.

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Sneak-Peek Into Robotaxi Day: Jonas raised doubts about Tesla living up to investors’ high expectations as he does not see anything beyond a demo of the FSD v12.5 software and a ride in a generation 1 Cybercab. The company could share a detailed analysis of the addressable market, showing “tens of trillions of passenger vehicle miles and tens of trillions of $ of potential recurrent revenue (by 2050),” the analyst said.

Looking ahead to the Oct. 10 event, the analyst said he would look out for reinforcement regarding safety, which can be through comparing the safety of Tesla’s autonomous vehicle technology with human driving. Tesla may also have to show the rate of change of performance across recent full self-driving iterations, he said.

Investors will also look forward to the methodology, i.e. how the critical enabling technologies will likely drive further improvement in FSD/Cybercab autonomy, Jonas said. The Morgan Stanley analyst, however, does not expect Tesla to announce updates regarding its Optimus humanoid robot at the event.

Tesla ended Wednesday’s session down 0.29% to $227.20, according to Benzinga Pro data.

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