Tesla and Palantir Will Become Competitors.
Mental Abstraction
Edited by Brian Birnbaum and an update of my original Tesla and Palantir deep dives.
At present, Tesla needs Palantir to achieve long term success in the robotics space. The alternative to said dependency is becoming a competitor. Given Tesla’s drive for vertical integration, I view competition as the more likely route.
In contrast to Palantir’s operational Ontology, Tesla is constructing the Ontology of autonomy, which could eventually develop into an Internet of Autonomy. Unlike the traditional internet, which transmits pictures and text, this new network would revolve around the exchange of autonomy tokens. These tokens would grant any machine the generalized ability to navigate three dimensional space autonomously. On its own, this is a trillion dollar business opportunity.
However, with further analysis, we find that Tesla’s Ontology operates on a horizontal level, serving as a foundational layer across industries. This distinction is crucial because, while Tesla focuses on general autonomy, a large volume of real-world applications will require more specialized datasets.
For instance, once Tesla perfects the ability to teach robots how to navigate three-dimensional space, these machines must then apply their skills to specific industries. To be useful across various sectors such as construction, healthcare, and defense, robots need access to high-quality, domain-specific data. This is where Palantir comes in—its core expertise lies in creating vertical Ontologies that provide specialized knowledge tailored to different fields.
Further, once robots learn to perform specialized tasks, they then need to prioritize actions informed by contextual data. In order to drive productivity gains across the enterprise, each robot must be aware of company operations and fellow robot activity in real time. The only solution is to plug into Palantir’s digital twins–or another competitor’s, should one ever emerge.
The implications of this development are vast, presenting both Tesla and Palantir shareholders with tremendous upside over the long term. Both companies are fundamentally redefining the economy in ways that Wall Street is yet to understand.
At a broader level, the economy appears to be shifting toward a structure composed of horizontal Ontologies interacting with the world through vertical Ontologies. The former are laying the foundation for autonomy across industries as the latter enable the specialized application (per function, per industry). Put differently, we are building comprehensive digital replicas of both the horizontal and vertical elements of the economy, which will commoditize automation.
The diagram below provides a simplified representation of this concept.
This is forming what I call “The Ontology Grid.” Just as the internet reshaped the economy by consolidating power into a handful of intermediaries, this grid is set to systematically commoditize more and more business operations. Companies that leverage this grid will be increasingly autonomous and efficient. As the grid absorbs exponentially growing volumes of data, companies that operate outside this grid will find it increasingly difficult and eventually impossible to compete.
As illustrated in the graph below, world GDP has surged from $1.36T in 1960 to $105.44T in 2023—a 77X increase over six and a half decades. I believe the Ontology Grid will compress the next 77X into just two or three decades. Because Ontologies thrive on network effects, the dominant providers of this infrastructure sit in pole position in a winner-takes-all scenario.
Once Tesla establishes autonomy across the U.S., it can rapidly scale the same capability across Europe and other continents at an increasingly marginal cost. The same holds true for Palantir, as it begins to offer high-value compute, pre-configured for specific operational needs across industries and functions. As an example of the latter, consider Anduril’s 200X efficiency gain in their ability to manage supply chain shortages via Palantir’s Warp Speed in Q4 2024, which is a pre-configured digital twin focused on manufacturing processes.
The prize for both companies is infinite from here, but Palantir’s ontologies are upstream from Tesla’s. Ultimately, end customers won’t care about the software that enables robots to navigate 3D space. Rather, they will care about the end applications of such robots and how they will impact their business. Thus, vertical Ontologies are likely to be the top of the funnel in the autonomy economy and the component of the grid that commands pricing power. Therefore, over the long term the incentive for Tesla to compete with Palantir is infinite.
The probability that Tesla ends up competing with Palantir or attempting to do so is therefore reasonably high. For now, however, I expect Palantir’s exclusive focus on digital twins to shine through. Further, as Palantir comes to connect digital twins and essentially transition to becoming a network of them, I believe they will get harder to disrupt. After all, once all your providers and customers run on Palantir, why not connect your respective twins to accelerate operations even more?
In the past I’ve said that Palantir will likely end up being bigger than Tesla. This is because I see higher odds of Palantir taking the top of the funnel of The Ontology Grid and thus commanding much of the resulting earning power over the long term. Once/if Tesla abstracts away autonomy and energy, incremental dollars will flow towards vertical Ontologies. Past that point, having the best vertical Ontology will be the source of competitive advantages in the market.
In summary, there’s a spectrum of possibilities for future interactions between Palantir and Tesla. What’s certain today is that both are creating platforms that are bound to redefine the economy, and the big prize will accrue to the top of the funnel. Given the dimension of potential rewards, I believe we are likely to see the two companies competing.
Until next time!
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