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Tesla confirms AI chips, Musk threatens to take company private

Tesla CEO Elon Musk has confirmed that the company is working on its own chip designs for AI-based tasks in its cars. On an earnings call, he said that it was time to let the cat out of the bag, and confirm that the project had been in semi-stealth mode for the past two to three years. Days later, he also said he was considering taking the company private, and has apparently already lined up the financing to do so. Tesla’s share price jumped on that news.

The computer system is called Hardware 3, and has apparently been designed so that it can be dropped into the Model S, X, and 3 vehicles, as a replacement part. If Tesla succeeds in this development project, it will be a blow to Nvidia, as Tesla has used its Drive computer platform until now. Nvidia’s GPUs and SoCs may still be used in the Hardware 3 configuration, but it looks like Tesla wants to take back a lot of control here.

The company has taken a lot of flak for its Autopilot program, which many have accused of being dangerous because of the consumer connotations of the term – with people trusting the system too much, and taking their eyes off the road. To this end, there’s not an immediate benefit in bringing the hardware back in-house, if the goal is to boost the image of Autopilot, as it’s the software that is key and Tesla already manages that.

As such, the most reasonable conclusion is that Tesla thinks it can save money on Hardware 3 if it does the work itself, or that it thinks it software might leak out into the world if it needs to supply an OEM with test copies. Designing its own hardware could lead to performance increases, if the hardware can be specified to best suit the demands of the software.

Tesla’s director of the Hardware 3 project, Pete Bannon, said on the call that “we had the benefit of knowing what our neural networks looks like, and what they’ll look like in the future,” adding that the system should be available in 2019. Similarly, this means that Tesla can introduce features unique to its demands, rather than wait on suppliers that are trying to cater to a wide spread of customers.

Musk added that “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.”

So it sounds like Tesla has plans for some very specific ASIC designs, which would be able to take advantage of being made exactly for the neural networks that it is using to power its self-driving software. Now, time for an Elon claim: the CEO says that Hardware 3 is capable of 10x the performance of the Nvidia hardware, processing 2,000 frames per second with full redundancy and failover.

Given Nvidia’s recent announcements, its newer designs should be closer to the claimed performance of the Hardware 3, however, we’ve no way of benchmarking such claims, as it stands. Strangely, Musk said that the system is the same cost as the current hardware, so it seems that performance is the main motivator, based on that comment at least, as well as those quicker refresh cadences.

This brings us onto the latest Twitter incident, where Musk said that he was considering taking Tesla private at a stock price of $420, adding that he had already secured the funding to do so. That’s a total cost of $82bn, at that $420 price including the company’s rather large debt-load, and that tweet has sent Tesla’s share price upwards. At the approximate time of the announcement, the stock was worth around $342. Now, it is at $380, although it seems to have leveled off.

After the tweet, a blog was published, after being sent to all employees, which did note that a final decision has not yet been made. Musk said that doing so would help create an environment in which Tesla could better operate, where it is not “subject to wild swings in our stock price that can be a major distraction,” and removes the pressure to hit quarterly targets. Musk claims that Tesla’s is “the most shorted stock in the history of the stock market.”

However, the announcement did lead to Tesla’s stock being suspended from trading for a time, although it has now been resumed. If it is attempted, this would be the largest leveraged buyout in history, but the wider financial community seems to have no idea that such a deal is being planned. The SEC isn’t commenting, and when CNBC asked Wall Street banks, none said they were aware of such a plan, nor of the funding commitments required.

As such, there’s speculation that this is just an attempt to boost Tesla’s share price, and thus improve its financial position. The company has appeared to be struggling in past months, going as far as asking suppliers for discounts or the return of some cash paid to them for products not yet in use. The cash burn rate has been a frequently cited cause of concern for the financial community.

Musk said he’d remain as CEO, should he take Tesla private, and added that “I don’t have a controlling vote now and wouldn’t expect any shareholder to have one if we go private. I won’t be selling in either scenario.” He later said that he hoped “all current investors remain with Tesla even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity’s SpaceX investment.” He added that he wouldn’t end up owning more than he does now, around 20%.

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