Elon Musk Just Told Tesla Investors to Sell Their Stock. Here’s Why He Might Be Right

Earnings season is in full swing, and as usual, big tech companies are giving investors plenty of reasons to pay attention.

Pioneer of electric vehicles (EV) Tesla (TSLA -4.24%) got the party started by kicking off earnings season in late July. To the surprise of probably no one, Tesla CEO Elon Musk shared his brutally honest thoughts on the company’s future.

Let’s take a look at some of Musk’s controversial remarks during his earnings press conference and assess why he’s right, as well as what it means for Tesla investors in the long run.

What did Elon say?!

While Tesla is best known for its fleet of electric vehicles, Musk has repeatedly made it clear that he sees the company as an artificial intelligence (AI) and robotics enterprise.

While there are many ways Tesla could benefit from AI, the company’s primary goal is to develop better autonomous driving technology. Those ambitions have enraged smart money investors and analysts on Wall Street for a long time.

But after years of intense research, development, and aggressive spending, Musk is now increasingly bombarded with news about progress on Tesla’s autonomous driving capabilities.

During Tesla’s second-quarter earnings call, Musk didn’t mince his words when he boldly said, “I recommend that anyone who doesn’t believe Tesla is going to solve the autonomous vehicle problem doesn’t hold onto Tesla stock. They should sell their Tesla stock.”

To me, that was Musk’s version of drawing a line in the sand. If investors think the idea of ​​autonomous driving carries too much execution risk or is simply more science fiction, they should walk away, Musk told investors.

While anyone can appreciate honesty, the bluntness of this type of communication can be jarring. Think of it this way: Have you ever heard a CEO tell you NO invest?

While Musk’s words are harsh, I think investors have been given a dose of realism that has sobered them up — and it’s time to consider why Musk might be right.

Why might he be right?

Tesla’s self-driving software is referred to by management as Full Self-Driving (FSD). There are currently two key ways FSD can help ignite further growth at Tesla.

First, if Tesla’s FSD proves to be better than other autonomous driving platforms on the market, it could lead to an influx of new electric vehicle buyers.

The second opportunity for FSD lies in Tesla’s vision to build a large-scale fleet of autonomous cars, an initiative called Robotaxi. If executed flawlessly, the fleet of autonomous vehicles could disrupt markets like ride-hailing, delivery and logistics, as well as car rental companies.

But there are also inherent risks. First, Tesla could suffer if FSD doesn’t scale exponentially. It’s hard to know how many people actually want to buy a self-driving car or would be comfortable driving one.

Second, Robotaxi’s rollout hasn’t been flawless so far. Earlier this year, Musk and his team told investors that the Robotaxi announcement would be revealed on August 8. Unfortunately, that highly anticipated event has been delayed, only adding to speculation and skepticism about how good FSD is and whether it’s ready for widespread commercialization and adoption.

The third risk I see with FSD is related to cost. Developing autonomous driving technology requires significant investment in engineering, quality assurance testing, and more.

For now, Tesla relies heavily on FSD training for its models Nvidiagraphics processing units (GPUs) – a venture that is currently generating billions of dollars in expenditure for Tesla.

For all these reasons, if you don’t fully believe in the idea of ​​autonomous driving, its potential to scale, and Tesla’s ability to execute projects, then Musk’s advice to get rid of Tesla stock may be absolutely right.

Summary

As investors, it’s important to step back and think about the bigger picture. Throughout history, many successful businesses have expanded from their initial products and evolved into more sophisticated operations.

I think Tesla is at a point in its evolution where it should no longer be seen as a car company. The company’s transition from an EV and energy storage business to a full-fledged AI enterprise is the next frontier for Tesla.

In my opinion, Musk’s comments shouldn’t be seen as scary or cautionary. Rather, he makes it clear that Tesla has an ambitious vision for AI. If you don’t share that view, you’ll likely find holding the stock frustrating.

As a long-time Tesla shareholder, I have been a believer in the AI ​​and robotics vision for some time. I appreciate Musk’s candor on the earnings call and see Tesla as a compelling AI opportunity that is both misunderstood and underappreciated.

But before you make a decision or expand your business, I think it’s worth taking some time to listen carefully to Musk’s advice and his vision for the future of Tesla.