Tesla's Future: AI Chips and China Factories

According to recent reports, Tesla is banking their future on two key areas — factory expansion in China, and in-house A.I. development.

According to a recent report from Bloomberg, Tesla’s billion-dollar Chinese expansion is an attempt to capture more market share in that country. China is expected to remain the largest electric-vehicle market for the next few decades. China is currently the fastest-growing auto and consumer market and demand for electric vehicles is on a steady rise as the Chinese government cracks down on pollution and restructures their factory-led economy into a tech-fueled economy. Beijing has been pushing for policies to increase the number of electric vehicle users, such as tax incentives for buyers and registration breaks.

Nannan Kou, a senior associate at Bloomberg NEF in Beijing, discussed China’s growing promotion of electric vehicles saying: “China’s determination to go electric and the sheer size of its market” are driving global EV adoption. “Global carmakers have brought forward their timetables for EV development by six to seven years under China’s EV push.”

Tesla claims its new Chinese facility, known as the Gigafactory 3, will be producing approximately 250,000 vehicles and battery packs per year, with that production capacity doubling over time. The cost of the plant at full capacity is estimated to be around $5 billion, according to a source familiar with the plans. In a conference call, CEO Elon Musk stated that the cost to build 250,000 vehicles a year would be approximately $2 billion.

Other companies are also attempting to cash in on the electric vehicle market so Tesla may face competition from well-established auto companies such as  General Motors, Toyota, and Volkswagen.  Tesla is expected to start construction of their Chinese facility in the next few quarters, but the facility won’t begin to operate “in any significant way” until next year according to s shareholders letter released on Wednesday.

Tesla’s other future focus is reportedly on the topic of A.I. for self-driving cars. “We’ve been in semi-stealth mode on this basically for the last 2-3 years,” said Elon Musk on a recent earnings call. “I think it’s probably time to let the cat out of the bag.” What Musk is referencing here is the production of a Tesla computer known as “Hardware 3,” which can be swapped into Model S, X and three vehicles. The purpose of the computer is to perform all of the analysis and computational tasks to advance these cars self-driving abilities, a task previously performed by Nvidia’s Drive platform.

Tesla claims it has decided to bring this key element of self-driving car production in-house for the sake of efficiency. Pete Bannon, the director of the Hardware 3 project stated: “We had the benefit […] of knowing what our neural networks look like, and what they’ll look like in the future,” noting that the hardware upgrade should start rolling out within the next year. Musk added: “The key is to be able to run the neural network at a fundamental, bare metal level. You have to do these calculations in the circuit itself, not in some sort of emulation mode, which is how a GPU or CPU would operate. You want to do a massive amount of [calculations] with the memory right there.”

According to Musk, the new Hardware 3 capabilities are quite advanced, while Tesla’s software on Nvidia hardware was dealing with approximately 200 frames per seconds, Tesla’s specialized chip was able to produce approximately 2,000 frames per second “with full redundancy and failover.” It seems that Tesla may have plans to introduce this new hardware into a number of existing Tesla models, with Musk stating: “We made it easy to switch out the computer, and that’s all that needs to be done. You take out one computer, and plug in the next. All the connectors are compatible.”