Can Tesla's Robot Find Commercial Success?

Tesla’s (TSLA) Optimus robot, which CEO Elon Musk says could one day become bigger than its fast-growing electric vehicle (EV) business, faces a myriad of challenges in its road to commercial success, industry observers say. Musk has said the five-foot-eight, 125-pound robot will ‘transform the world’ and be able to handle most human tasks but industry executives wonder how it will achieve that, given that humanoid technology is still at an embryonic stage. 

“The tech is not near mature enough,” says Will Jackson, CEO of UK robotics firm Engineered Arts, whose Ameca robot raised headlines recently. For instance, "the mechanics of a human’s muscle, of its sensitive [innate] force control, don’t exist. We don’t have a gear box combination to mimic its ability to grab something which size or shape it may not know by relaxing its hand and then using the just right force to grasp it.”

Indeed, Engineered Arts, which is ramping up to churn out 500,000 ‘entertainment’ humanoids (to deliver GBP5 million of revenues in five years), has tried to achieve that kind of precise engineering for 15 years, Jackson concedes. 

More specialized rivals such as Agility Robotics or Boston Dynamics have also been unable to deliver that level of sophistication in a humanoid robot, analysts add. Boston Dynamics, however, is working on a 5 feet, 190 pound bipedal humanoid dubbed Atlas. Designed for search-and-rescue applications, it can perform impressive acrobatics including backflips and will likely give Optimus a run for its money.

Economies of scale

Challenges aside, Oppenheimer analyst Colin Rush sees Optimus generating economies of scale at Tesla, adding that it could help automate production, slashing car production costs as it boosts production at its fledgling factories in Texas and Germany.

"There's an enormous opportunity around automation,” he says, adding that the bot will also help cut labor costs as inflation skyrockets. "We're in a very tight labor market right now across the economy… And so anywhere where we're seeing savings around labor rates or, you know, just efficiency within operations, there's a lot of value release."

Musk’s Optimus timing seems auspicious, given that that the $1.1 billion humanoid market is set to grow 35% annually between 2022 to 2031 as Robocop-like machines get involved in entertainment, education and even space exploration (Russia, for instance, already has a space robot called Fedor), according to a report by Bizwit Research & Consulting.

“Humanoids exist for entertainment, education, information and human interaction,” Jackson says. “In the next five years, you will see them in more commercial situations, in stores or shopping malls or airports, where they will interact with people and be fun to talk to.

Entertainment value 

Adds Jackson: “You might sit at a bar and have fun with a humanoid robot or have one as a companion [though he noted his machines won’t offer sex]. Entertainment is much more feasible.”

Noah Hamman, CEO of Tesla investor AdvisorShares, agrees Optimus will bring value, notably in the service economy where the robot could take on basic jobs at restaurants, retailers or warehouses. Already, Musk has said the robot will be able to execute ‘boring, repetitive’ tasks. “You might see them at a restaurant serving food or at a store making a sale,” Hamman envisages, adding that the droid will walk at 5 mph and be designed to ensure any human can overpower it in case of an emergency. 

“Someone may try to steal it but it will probably shut down and send an alert rather than be aggressive,” adds Hamman, noting that avoiding public altercations will be key to ensuring the project avoids regulatory headwinds.

The financier, however, expects Optimus’s first series, which are set to roll out next year, will be very basic prototypes, adding that it will take much time and effort to make the humanoid a bigger business than Tesla’s highly successful, $19 billion car franchise, which has huge backlog orders.

“I am not optimistic about near-term revenues,” Hamman adds. “Looking at today and thinking of the plan to build the bots in 2023, everyone is having trouble with supply chains right now and these issues will take a few years to sort out.”

Investors are looking forward to Tesla’s AI Day on August 19 when there will be ‘many cool updates,’ Musk recently tweeted.

“They haven’t issued a lot of information other than the robot’s size and weight, that they will have facial screens and that they will be able to run simple errands, like going to the grocery store or doing domestic chores,” Hamman concludes.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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