Supply chain issues brought on by the pandemic have been particularly challenging for the automotive sector. A global chip shortage among an onslaught of supply chain obstacles have adversely affected the entire industry. Tesla's vertically integrated strategy proved to be very advantageous when facing these supply chain challenges.
Tesla's insistence on vertical integration used to be one of the main reasons the company struggled to become profitable and reach volume production. Now, it has allowed the company to scale rapidly while the broader automotive industry is down amidst a supply chain disaster.
The conventional automotive business model has traditionally concentrated on design and final assembly while largely outsourcing to suppliers. This strategy left them extremely vulnerable to supply chain turmoil.
In the past, automakers outsourced as much as possible and mainly focused on supply chain management. In the short term, this strategy reduced production costs but in the long term, legacy automakers lost the ability to adapt, innovate and advance technology.
Automotive manufacturing has typically relied on third party suppliers which has led to supply chain contingency and reliance on external companies. This business model has been successful for a long time due to the maturity of the internal combustion engine and a lack of need for innovation.
Tesla recognized the stagnant supply chain of the automotive industry and revolutionized it by adopting a vertically integrated strategy.
Tesla is a chain of startups
- Elon Musk
In recent years, Tesla has defied the conventional business model, reducing supply chain needs and reliance on other companies.
Tesla has vertically integrated many production steps, from battery production to electric powertrain production and self-driving software. According to Tesla CEO Elon Musk, Tesla is a "chain of startups."
This strategy allowed Tesla to avoid shortages of batteries, which have hindered legacy automakers from reaching volume production of electric cars. Before legacy automakers began investing in electric vehicle manufacturing, Tesla partnered with Panasonic to build its first gigafactory to produce batteries. Now, the gigafactory ensures a reliable supply of batteries.
Lucid Motors, a newer EV automaker, has also adopted a more vertically integrated business model. CEO Peter Rawlinson says that gives them a huge advantage in the modern EV technology race.
In an interview, Rawlinson stated, “The electric powertrain cannot be bought off the shelf at a world-class standard, it is not a commodity. This is a technology race and the market doesn’t see it yet."
Tesla's in-house software development is perhaps their biggest advantage over its competitors. As a Silicon Valley born company, Tesla has never outsourced their software. They have instead developed a proprietary self-driving software that is improved by collecting data from Tesla's network of over one million beta testers.
Ford CEO Jim Farley emphasized the company's need to move away from the “catalog engineering” business model at a conference earlier this year, saying "The most important thing is we vertically integrate."
Tesla is potentially going a step further to vertically integrate their supply chain. In light of the skyrocketing prices of lithium, Tesla may plan to get into the lithium mining and refining business. Tesla is considering mining some of its own raw materials for the same reasons that they developed their own batteries, produced their own electric motors and built their own computer chip and software for autonomous driving.
Tesla's pace of innovation and lead in the industry has become clear as the traditional business model of outsourcing components and software to cut production costs is quickly becoming outdated.
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Musk shared details on two distinct new versions of FSD that are currently in development - one of which is coming soon and another that promises another leap in FSD’s abilities.
It’s a new version of software, but will merge to main branch soon.
We have a more advanced model in alpha stage that has ~4X the params, but still requires a lot of polishing.
While the Robotaxis running around Austin are identical to new customer vehicles, they’re not running the same FSD build on customer vehicles. These Robotaxi Model Ys are running a newer FSD build.
While the exact version of FSD is unknown, Musk said that it’ll be released to customers soon. However, more interestingly, he also shared details on a newer version that’s coming next.
Musk said that this version will also arrive to customers later this year. This 4.5 times model appears to be in a relatively early alpha stage. This jump in parameters is even larger than the “3X increase” that’s detailed in the Upcoming Improvements of the FSD V13 changelog. Other improvements listed in the FSD v13 changelog were a 3x context length improvement, audio inputs, improvements to reward predictions and false braking, and support for destination options when arriving at the destinations. However, it’s not clear whether any of these others are included.
It’s a new version of software, but will merge to main branch soon.
We have a more advanced model in alpha stage that has ~4X the params, but still requires a lot of polishing.
The increase in parameters allows FSD to understand the world with greater nuance, which in turn means smoother and more human-like decision-making and path planning. It also means FSD will become more capable of handling edge cases or inclement weather, a stressor noted by Tesla’s Executive team during the Q1 2025 Earnings Call.
Increasing the context length allows the vehicle to consider a longer history when making decisions. Context length and responsiveness are closely linked: a shorter context length enables quicker reactions, while a longer context length provides more informed decisions but introduces latency. The context length in terms of FSD is measured in seconds, where the vehicle uses just the past few seconds of video data to make a decision.
Retraining FSD
~4.5X increase in params should be ready for wide release later this year.
Super frugal use of memory bandwidth, caching exactly what is needed & squeezing microseconds out of everything are needed to maintain the frame rate.
A more powerful AI model requires more computational power, and Elon provided some more insights into what exactly that means for the Tesla AI team. Frugally using memory bandwidth and squeezing every last drop of performance from AI4’s hardware is necessary to maintain its ability to keep up with the environment around it.
Musk says that this new, larger FSD version will require Tesla to retrain FSD from the ground up. Tesla is already planning on expanding its compute nodes with a second Cortex Supercomputer cluster. It takes an astronomical amount of data, time, and energy to train FSD, and with a major update on the horizon, it seems like Tesla has been putting the lion’s share of compute into this new build.
FSD Timeline
Musk laid out a relatively rough timeline for these new FSD improvements. Remember, with all things Elon, two weeks could very well be two months.
Soon: The current, tried and tested build that’s running on Tesla’s Robotaxi fleet in Austin will be merged into the main public FSD (Supervised) build. This build will be the next major build for customers. This could be FSD V13.3. It’ll be a step up, but not as large as the next version.
Late 2025: The new 4.5X parameter model is slated for a wider release several months from now. We’ll tentatively call this FSD V14 - because it sounds like an entirely new version being built from the ground up.
This is a much-needed update from Elon and Tesla on where FSD is headed and when. It’s been more than eight months since the last Autonomy Roadmap in October 2024, even if these updates are encoded in “Elon Time.”
The streets will change very rapidly.
Autonomous cars will be very common throughout the world in 2 to 3 years.
Elon also touched on the ultimate goals and the long-term business plan for FSD. With FSD already being considerably safer than the average human driver, alongside its superhuman reflexes and precision, Tesla will be well-positioned to license FSD.
Tesla AI/Autopilot could probably beat the best human around a track already.
Eventually, it really won’t be a contest at all. Human reflexes cannot match machines.
As FSD and the Robotaxi network become widespread and other autonomy solutions fail to materialize in a financially prudent fashion, other companies will naturally turn to Tesla for autonomy.
It’s Tesla’s golden moment to do all it can to implement the dream that it’s been striving for for over a decade.
With a new FSD version on its way to customers and a fully rebuilt version on the horizon, there’s a lot for everyone to look forward to.
Today, @terrapinTerpene on X spotted a pair of interesting-looking Model Ys on the streets of Austin, Texas. The first black Model Y had a Robotaxi wordmark emblazoned on the front door of the vehicle.
The best part is that the lead vehicle didn’t have a driver in it. The second, trailing car did have a driver, likely a chase driver, but it didn’t have the same Robotaxi logo on the side. Tesla is likely conducting the final stages of testing where unsupervised vehicles are going from point A to point B, while still having a safety vehicle nearby.
— Terrapin Terpene Col (@TerrapinTerpene) June 10, 2025
This comes just as the City of Austin officially listed Tesla as a Known AV Operator on their Autonomous Vehicles website. That regulatory green light has now been translated into reality with the first sightings of Tesla Robotaxis on the streets of Austin - and we’re expecting to see even more of these vehicles in the next few days.
Several Tesla employees quickly chimed in as the video began circulating on X.
Employee Reactions
Tesla’s key members jumped up on X to respond to the sighting. Ashok Elluswamy, Tesla’s VP of Autopilot and AI Software, responded with a simple message.
“Slowly at first, then…” - Ashok
Tesla’s stated plans for the rollout are to begin with a small fleet of just 10 Model Ys in Austin for the initial stages. This will allow for a controlled deployment while Tesla closely monitors and confirms that they’re within the safety envelope they’re looking for - much safer than a human driver. That number is then expected to increase over the coming weeks and months, with an expectation to hit over 1,000 Robotaxis in use by late 2025 as Tesla looks to expand their services to other cities.
Tesla is expected to launch the Robotaxi network to employees on June 12th, just two days away. A public launch, where anyone could use a Robotaxi, is expected to follow in late June or early July,
Tesla’s Lead Engineer for the Robotaxi Program, Eric E, was even more direct on X.
“Its go time”. - Eric
Musk Confirms These Are Ordinary Model Ys
Elon also commented, stating that each of these vehicles used in the Robotaxi network are standard Model Y vehicles, coming directly from the factory, reinforcing the point that every new Tesla will be capable of Unsupervised FSD.
These are unmodified Tesla cars coming straight from the factory, meaning that every Tesla coming out of our factories is capable of unsupervised self-driving! https://t.co/n94ln0Uas6
This is what’s critical to Tesla. Unlike competitors like Waymo, who depend on bespoke vehicles with nearly another car’s worth of expensive LiDAR, Radar, and camera sensors mounted on top of an existing vehicle, Tesla is demonstrating that any Model Y equipped with its latest FSD computer, AI4, is capable of Unsupervised FSD.
This is exactly what Elon means when he says millions of vehicles will become Robotaxis overnight. It takes just a flick of a software switch to enable Robotaxi for every AI4 Model Y out there today.
Tesla’s main account on X also doubled down on Elon’s statement, pointing out that it is really just a standard Model Y.
After years of promises, testing, development, disappointment, excitement, and hype… Tesla’s golden moment is finally here. The appearance of real Robotaxis using FSD has finally arrived. This isn’t just an internal beta happening on factory roads or with safety drivers. The first Teslas are finally really driving themselves on public roads with no human supervision.
The next few days will no doubt be some of the most exciting days in Tesla’s history.
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