TikTok: Conflict escalates

(Please also read our Article dated 19th April, Vol 19 on techcrisp.org)

On April 23rd, 2024, the United States Senate passed a bill with bipartisan support to ban TikTok’s Chinese parent company, ByteDance Ltd. The ban is due to growing concerns that the company may misuse data collected from its 170 million American users for propaganda by China. President Joe Biden has declared his intention to sign the bill into law, but TikTok has announced its plan to challenge the legislation legally. The bill provides ByteDance with almost a year to divest from TikTok before the app could potentially face a ban.

TikTok has been expanding its e-commerce business in the United States this year. As a result, it has developed extensive connections with millions of content creators and small business owners who rely on the platform. With an estimated revenue of $20 billion from the US alone, the ban could significantly affect the app’s operations and affiliated creators. However, it is unlikely that Beijing will approve the sale of TikTok, as the Chinese government wants to prevent the app’s algorithms or data from falling into American hands.

The proposed legislation can potentially prohibit other apps considered under the control of a foreign adversary by the President and place new restrictions on data brokers who sell information to foreign adversaries. It is noteworthy that Susquehanna International Group, an investment company owned by Republican donor Jeff Yass, holds around $40 billion in ByteDance stock. Meanwhile, former President Donald Trump, who previously attempted to ban TikTok, has shifted his angst on Meta.

This impact is not limited to the United States alone but can extend to Europe, where the platform has an estimated 100 million users. TikTok has faced scrutiny under the EU General Data Protection Regulation (GDPR) due to concerns about data sharing with the Chinese government and its use for propaganda purposes. Additionally, the platform has been examined under the EU’s Digital Services Act, which establishes a legal framework for regulating digital platforms. The European Commission has initiated investigations into TikTok’s compliance with the DSA.

In the coming years, the new EU AI Act, which seeks to regulate the use of AI algorithms by ensuring privacy, transparency, fairness, and accountability, is expected to impact TikTok’s operations significantly. This may require TikTok to adjust its algorithm or provide more detailed information about its functionality.

As the USA—China technology and trade war escalates, the US will surely pressure the EU to take a tough stance on TikTok, especially under various EU Laws. We can expect retaliatory steps from China.

The Internet was built for open accessibility and free speech. This step will be coercive,  regressive, and dystopian for every internet user.

Tesla “Pie in the Sky”

(Please also read our Article dated 3rd March, Vol 15 on techcrisp.org)

On April 23rd, 2024, Tesla released its first-quarter earnings report for the year. During the subsequent earnings call, CEO Elon Musk made a strong statement regarding the company’s pursuit of fully autonomous vehicles, asserting that those who doubt Tesla’s ability to achieve this milestone should reconsider their investment in the company. Despite Musk’s longstanding confidence in reaching Level 5 autonomy, Tesla has thus far only attained Level 2, which involves partial autonomous or supervised driving. In contrast, competitors such as Mercedes, Honda, and Audi have already advanced to Level 3. However, Musk did not address any current trials or regulatory obstacles the company must overcome to reach Level 5 autonomy in the United States.

Musk emphasized Tesla’s focus on artificial intelligence, highlighting that the company’s primary identity is not an automobile manufacturer but an AI enterprise. He also alluded to the potential of Tesla’s Optimus humanoid robot project to catalyze boundless economic growth.

The call also featured Musk’s announcement of Tesla’s foray into the realm of robotaxis. Apart from the ambitious goal of operating millions of these autonomous vehicles, no specifics were provided. Various tech giants like Waymo, GM Cruise, and Zoox are already testing robotaxis, albeit with regulatory hurdles and safety concerns from the general public hindering widespread adoption. It is anticipated that these technological and social challenges will require at least 3-5 years to resolve before robotaxis becomes a feasible reality, contingent upon regulatory approvals. Additionally, uncertainties remain regarding the specifics of Tesla’s business model for robotaxis.

Tesla also unveiled plans to introduce an affordable electric vehicle (EV) priced around $25,000. The company claimed that a groundbreaking technology would halve production costs in Mexico, although no timeline was specified. In reality, several Asian competitors, such as BYD and Xiaomi, already offer low-cost EVs and are gaining traction in various markets. China’s dominance in the EV battery market, controlling 80%, gives these manufacturers a competitive pricing advantage.

Amidst market share loss, Tesla has been forced to reduce vehicle prices in key markets such as China, Europe, and the USA by $2,000 to $3,000 to mitigate inventory pile-ups. Additionally, the company has announced the cutting of approximately 14,000 jobs.

This development follows a recall of about 3,900 Cybertruck pickups to fix or replace defective accelerator pedals that could detach and result in unintended acceleration, heightening the risk of accidents.

Tesla has scaled back production at its Shanghai factory. This factory produces EVs for China and exports them to other Asian countries, Europe, and Canada. In the first two months of this year, shipments from this plant decreased year-on-year despite a rise in overall passenger vehicle sales in China.

The staggering drop in vehicle sales significantly affected Tesla’s financials in the first quarter. The primary issue can be summarized as follows: Since Q2 2022, when Tesla’s revenue per vehicle reached nearly $56,000, the average price has plummeted by about $12,000, while the production cost has only declined by less than $5,000.

These changes have caused a ripple effect throughout the company. Gross profit margins have shrunk, and operating margins have been squeezed to 5.5%, marking the lowest point in three years – even lower than General Motors Co’s. For most of the past two years, Tesla has been manufacturing more vehicles than it has sold, with last quarter’s surplus being the highest. The enormous working capital swing, bolstered by inventories, negated operating cash flow (though Tesla anticipates this will reverse in the current quarter). The company reported its first negative free cash flow quarter since early 2020.

Tesla’s stock has nosedived 42% this year, resulting in a loss of approximately $329 billion in market capitalization, with a notable decline this month. Trading at almost 50 times forward adjusted earnings, the stock surprisingly experienced a post-market surge of over 10%, seemingly fueled by the AI and robotics hype.

While it is true that Tesla manufactures automobiles utilizing AI – as do numerous other companies – the promises of autonomous driving, Optimus robots, robotaxis, and low-cost EVs represent aspirational ventures that have yet to be fully realized. Investors remain captivated by the Tesla dream, but the reality of increased competition and unfulfilled promises is rapidly approaching.

As more options from Chinese newcomers and established automakers in Japan and Europe enter the EV market, Tesla must overcome numerous obstacles to maintain its edge. Entirely autonomous cars remain an unattainable ambition for the next 5-7 years, even in the US, let alone the rest of the world.

Elon Musk is either disconnected from reality, or his investors are caught up in the AI hype cycle. Tesla’s future success hinges on delivering tangible results rather than merely hyping up cutting-edge technologies.