As new developments from Chinese AI startup DeepSeek spark a tech rout, with investors concerned over the threat to US tech firms, the renewed market focus on AI and its permutations may be good news for Tesla (TSLA).
Morgan Stanley’s Adam Jonas writes that DeepSeek and its R1 reasoning model reportedly overtaking OpenAI’s ChatGPT is a potential game changer.
“[The DeepSeek news is] notable after a week of staggering spending announcements for Stargate ($100 billion to $500 billion) and Ambani’s reported $20 billion to $30 billion data center, Deepseek’s R1’s performance raises a number of questions ranging from intensifying global AI competition, differing paths of computational/power efficiency and national security and policy,” he wrote.
Jonas believes that while DeepSeek and ChatGPT live in the space of chatbots and virtual assistants, it is “embodied AI” — or physical objects harnessing AI to power functionality — that could be of most consequence in the AI race.
“More than any other factor, the growing investor interest in embodied AI has been driven by recent advancements in genAI/supercomputing,” Jonas said.
For Tesla, this means advancements in AI — whether inspired by OpenAI, DeepSeek, or Tesla itself — will help the millions of vehicles it has around the globe that are using self-driving software like Autopilot or full self-driving or could eventually be converted to Robotaxis.
“EVs are the ‘sockets’ for the forthcoming physical (’embodied’) AI. In our opinion, if the US wants to be a leader in autonomy, it must ultimately embrace electric mobility,” Jonas said. “In our view, this could enhance the market’s appreciation for what Tesla brings to the table beyond the EV market.”
And this also means a demand for visual data, which Tesla collects in troves.
“Just as chatbots need textual data to train LLM foundation models, physical robots need vision data to train their VLA [vision, language, actuation] foundation models,” Jonas said.
Which brings the discussion to robots, where Tesla and CEO Elon Musk are increasingly bullish on the prospects of its Optimus robot. Embodied AI will power Optimus, and renewed focus on this kind of AI development and efficiency coming from products like DeepSeek AI could boost this business for Tesla. Musk has predicted there could be half a million Optimus robots in service by 2027, a trillion-dollar total addressable market.
There’s also a national security element that could fuel more spending. Government focus on what embodied AI means not only on the roads but also with drones in a military campaign, for instance, will only fuel more spending and investor attention on the embodied AI theme, Jonas said.
