This.
This is such an important concept to grasp. It's the advantage flywheels, the rich
get richer, winner-take-all reality of business in 2024.
From Fortune via Yahoo Finance April 29:
Elon Musk has a message for America’s business leaders—either prepare yourself for the AI revolution or start writing your corporate obituary.
At a juncture in time when Tesla’s CEO is cutting back on investments into new vehicle capacity, he is spending $10 billion this year alone to bulk up on AI training and inference, and position Tesla at the forefront of the industry for real-life applications outside of generative AI.
“Any company not spending at this level, and doing so efficiently, cannot compete,” he posted on X Sunday.
Spending on AI inference would primarily be targeted at his range of cars, a possible indication that he is preparing the ground for the next generation of his custom-designed Full Self-Driving (FSD) computer known as HW5.
The distinction between training and inference is important since close observers will know Musk is currently working on another major AI project, his humanoid robot dubbed Optimus after the 1980s cartoon vehicle that transformed into a sentient robot.
This bold and risky pivot toward AI—and by implication away from his previous focus on a tenfold increase in car sales to 20 million EVs annually—definitively answers the perennial question whether Tesla is an automaker or a tech company in favor of the latter.
Any typical auto executive would have long since invested in rejuvenating one of the oldest product ranges in the auto industry. For example, Tesla’s EV archrival, BYD, is pumping out one new model after another across its portfolio of brands with the help of its small army of 90,000 vehicle engineers.
Tesla will spend around $10B this year in combined training and inference AI, the latter being primarily in car.
— Elon Musk (@elonmusk) April 28, 2024
Any company not spending at this level, and doing so efficiently, cannot compete.Musk however seems to view his cars more as an iPhone on wheels, a premium device for delivering high-margin software, that can be sold at lower profit since revenue will be recouped by offering services around the vehicle.
For the moment, that approach has not worked. Tesla has found itself forced to repeatedly cut prices to stimulate enough demand to keep his factories humming. Musk even recently resorted to slashing the price of his FSD software by a third.
Only 18 months ago, the idea of Tesla struggling to find customers seemed ludicrous, to borrow a favorite adjective of Musk. Yet China’s new generation of EV rivals are in a class of their own when it comes to value for money, and his own personal brand has been tarnished.
Musk’s latest answer has been to....
....MUCH MORE
This story was originally featured on Fortune.com
Previously:March 18
In Nvidia's World, If You (and your company) Don't Have Money You Will Not Be Able To Compete (NVDA)
February 28The advantage flywheels keep spinning and reinforcing each other to the point that the Pareto distribution of profits - 20% of companies reap 80% of the profits - is becoming Super-Pareto where 5% of the companies reap 95% of the profits and is approaching Hyper-Pareto at maybe 2% of companies reaping 98% of profits.
It all comes down to having the resources to keep up.
I watched Mr. Huang give the keynote and it's all a bit much to digest before firing out comments that would make any sense at all so here are some of today's headlines to give a taste of what the intro paragraph is based on.
These are Nvidia's press releases via GlobeNewswire....
The Hyper-Pareto Distribution Of Profits Is Happening Right Now (plus an anniversary)
It's not some cutesy management* fad or pop insight like "Business secrets of Genghis Khan."
To the rich go the profits and internalizing that fact makes the rest of this portfolio construction/fund management/investing stuff easier to conceptualize and execute.
And AI is accelerating the already extant dynamic.*Although
people had been observing and discussing "rich get richer" and
"winner-take-all" dynamics for over a century, one of our favorite
pointers toward the current situation did come out of a business school.
We've been hammering on this for so long that I start to bore myself.
Here's a recapitulation from last year, linking to an article that was published seven years ago today:
HBR—From Pareto To Hyper-Pareto: "AI Is Going to Change the 80/20 Rule"
A prescient article from the Harvard Business Review, February 28, 2017:....
*****
Why Do the Biggest Companies Keep Getting Bigger? It’s How They Spend on Tech"
...Much more important than the direct monetization of big data is the strategic advantage it can bestow over time.
In a winner-take-all economy, as in a horse race, small differences in superiority are rewarded all out of proportion to the actual advantage. A top thoroughbred may only be a couple fifths of a second faster than the field but those two lengths over the course of a season can mean triple the earnings for #1 vs. #2.
In commerce the results can be even more dramatic because rather than the 60%/20%/10% purse structure of the racetrack the winning vendor will often get 100% of a customer's business.....
Just to reiterate, every incremental advantage that a company can afford does not affect income production in isolation. They accrete in sometimes unforeseeable combinations:
How to Think About Companies: "Advantage Flywheels"
A very handy conceptual framework first posted after the start of the U.S. lockdowns, April 2020. Schools were closed so it seemed natural to link to a superb mini-MBA module.Eat your heat out HBR....
February 7
AI: Tesla Installing Second Dojo Supercomputer In New York Gigafactory (TSLA; NVDA)
AI: "Inside Tesla’s Innovative And Homegrown 'Dojo' AI Supercomputer" (TSLA)
It really is a big deal that a company can afford to spend over a billion dollars to build their own supercomputer and it really is a big deal that the same company has all the training data from the billions of miles of real-world driving and it really is a great example of the concept of advantage flywheels and hyper-pareto distribution of rewards, i.e. the rich get richer.
Whether it is going to open-up the $10 trillion addressable market and add the $500 billion of market cap that Morgan Stanley foresees is still an open question....
And many more. If interested use the 'search blog' box, upper left.
