Nvidia Just Teamed Up With Foxconn to Take On Tesla

For Tesla (TSLA 0.04%) investors, the future of your investment really depends on autonomous driving. After all, on the latest conference call with analysts, CEO Elon Musk said that while Tesla may look expensive for a car company, “success in this regard in the long term, I think, has the potential to make Tesla the most valuable company in the world by far.” He added, “If you have fully autonomous cars at scale and fully autonomous humanoid robots that are truly useful, it’s not clear what the limit is.”

On the positive side, it appears that other large tech companies may agree with Musk, as they are each pursuing the same technology. On the downside, they are also incredibly competitive AI companies such as Nvidia (NVDA 3.84%) and Foxconn, whose parent company is Hon Hai Precision (HNHPF -3.71%).

These two recently announced they’re teaming up to turbocharge their autonomous vehicle game and take on Tesla.

Foxconn aims to become the biggest EV assembler in the world

You may know Foxconn as the main assembler of iPhones in China, but the global electronics manufacturing giant is now aiming at the electric vehicle market as a key future growth driver. This includes the production of standardized parts and platforms, which automakers can use in their own branded EV designs.

In fact, Foxconn believes it can use its incredible economies of scale and buying power to become the largest electric vehicle contract assembler in the world. Back in March, TechCrunch reported that while Foxconn was targeting 5% of the EV market by 2025, it also harbors ambitions to build 50% of all EVs over the long-term.

The automobile industry is shifting from an old model when car companies would design their own engines and proprietary parts to one more like the electronics industry, in which OEMs use mostly outsourced semiconductors made by parts specialists. Foxconn is hoping to lead this change, developing a supply chain of battery and chip specialists. The company even bought the old General Motors plant in Lordstown, Ohio, back in 2021, as a step toward this EV future.

Nvidia and Foxconn team up to take on Tesla

Last week, Nvidia and Foxconn announced a new partnership, in which Nvidia will provide artificial intelligence infrastructure to Foxconn. These partnerships appear to span three realms: helping Foxconn’s customers implement AI, bringing artificial intelligence and automation to Foxconn’s own factories, and to add Nvidia’s autonomous driving capabilities to Foxconn’s EV manufacturing platforms.

One of the key parts for future cars is the electronic control unit, or the “brain” that senses a car’s surrounding environment and reacts autonomously.

The new Nvidia collaboration will bring Nvidia’s DRIVE Hyperion 9, its ECU powered by the Nvidia Thor, its system-on-a-chip designed for autonomous driving applications. The press release said:

As a contract manufacturer, Foxconn will offer highly automated and autonomous, AI-rich EVs featuring the upcoming NVIDIA DRIVE Hyperion 9 platform, which includes DRIVE Thor and a state-of-the-art sensor architecture. This will enable Foxconn and its automotive customers to realize a new era of functionally safe and secure software-defined cars. 

Look out Tesla?

If Tesla (TSLA 0.04%) is regarded as the Apple of electric vehicles, then Foxconn aspires to be the “Android.” counterpart. Of course, while Tesla does have a custom FSD chip on board its vehicles, it also uses Nvidia chips to for training those AI autonomy models. 

Tesla CEO Elon Musk has pointed to Tesla’s full self-driving mode as a key determinant of Tesla’s future value. However, it is unclear whether Tesla can be truly differentiated on this front if it still uses Nvidia chips, at least for training. Moreover, as Nvidia clearly has excellent tech, it’s unclear if Tesla’s on-board autonomous chip can really win out over Nvidia’s Thor, which other brands can access.

If Nvidia and Foxconn partner closely, using Nvidia’s leading AI technology chops and Foxconn’s scale to gather data, it could pose a threat to Tesla’s presumptive lead in autonomy, whether for a robo-taxi service or other market-leading capabilities.

Of course, Foxconn is just at the beginning of its EV journey, targeting the 5% threshold. Tesla currently has a 50% share in U.S. electric vehicles, but that market share is slipping, down from 65% last year, as more models enter the market. And of course, Tesla’s share is lower in other countries.

Scale generates more data, which is then processed, which leads to greater autonomous capabilities. But if Tesla and Foxconn’s customers have the same processing capabilities and Foxconn can scale through its third-party customers, it may generate a comparable competitive autonomous capability in the future.

While this is not an immediate concern, it is something for Tesla shareholders to monitor.