So Tesla just unveiled a semi-working prototype of its Optimus robot two days back and its unbelievable. I was waiting for this event for months and honestly I wasn’t expecting this much progress that they showed. The whole event crossed every expectation that I had, much so, that I thought of writing a blog on the significance of what was shown.

We have had robots for a long time now. Companies like Boston Dynamics, Honda, Raytheon, iRobot etc have already built various robots for different purposes. So what makes this Tesla’s Optimus so unique? — The reason is simple. It’s like before iPhone was launched, we had phones. But then the iPhone came and it changed everything. It was a 1000x improvement on any phone that we had at that time. It was fundamentally different, both in terms of hardware and software. Similarly, the Optimus is doing iPhonization to robots.

Just like iPhone, Optimus is built different. There are certain fundamental differences between the Optimus and the other robots that we have had till now. Here’s what’s noteworthy about the Optimus:

I. Software > Hardware: Building the synthetic brain

Optimus is much more software than it is hardware. The other robots are mainly hardware focussed. They can do certain things very well but that’s because they are pre-programmed to do those and only those specific things. Pre-programmed is a key word here. It simply means that they have to be told ahead of time what to do, and then they simply execute that program. Moreover, they cannot change their behavior while they are working. Optimus, on the other hand, can do so.

This is the first big idea — Optimus is not a pre-programmed robot, instead it uses computer vision to perceive its environment and it has a synthetic brain which uses neural networks and auto labelling to understand and make sense of its environment. This is very similar to how we humans function. We use our eyes for the vision part and we use our brains to understand and make sense of the environment. And just like a human, Optimus has the capability to learn and evolve over time.

II. Economies of scale

Here’s some numbers for context — There are about 100 Asimo robots, 400 Spot robots sold, and regarding the Atlas robot, I am not able to find the exact figure on the internet but it would be somewhere around the above range. My point here is that since these are pre-programmed robots designed for specific tasks, they are not made for mass production. In fact, there is no robot in the world that has ever been mass produced. Until now…

Tesla’s masterplan is to build millions of Optimus bots…MILLIONS. This is the second big idea — The very design of the Optimus bot, both hardware and software, is such that it can easily be scaled for mass production. This way Tesla can leverage economies of scale to reduce the cost per robot. To compare, Atlas robot which is not mass produced, costs around $75,000 whereas Optimus is going to cost somewhere around $20,000.

III. Network effects and the path to AGI

Today there are around 160,000 Tesla cars with FSD (Full Self Driving). The way this system works is kind of similar to the way Google search engine works. Each search query makes the entire search experience better for everyone who is searching on Google. The reason for this is because when you type in a search query, what you are doing is that you are teaching Google what people are searching for and also when you click a website, you are teaching Google what people are finding helpful and then those websites are then raised up in the search ranks thereby enhancing the experience for everyone. In other words, every person using Google is improving the overall product experience for everyone.

Similarly all the Tesla cars on the road are constantly collecting data that it then sends to a neural net training machine which learns new things and new edge case scenarios and this is then sent back to all the cars. As a result of this, every car on the road becomes smarter. So as the number of Tesla cars on road increases, the data collected also increases thereby making the self driving experience better for everyone much faster. Every person who joins the Tesla network by buying a car is adding value to every other person on the Tesla network because the autonomy is getting better. This is extremely strong network effects.

Now here’s the third big idea — Tesla is using the same FSD system for guiding and navigating the Optimus robot. What this means is that as the number of Optimus robots increases, the data collected also increases thereby making each robot more and more smarter and able. Now, AI is a zero-sum game, which basically means that it is a winner takes most market. The company that has access to high-quality data and has the capability to train it and feedback to the system extremely fast will capture the majority of the market share. Tesla currently is the leader in real world AI, both hardware and software and with network effects like these it is likely to stay so.

Here’s something that Elon Musk said at the event that blew my mind — “What Tesla is doing with the bot could lead to AGI”. This is undoubtedly the most important statement out of the whole presentation. I really don’t know what to say on this but I’ll just say if there is a slightest chance that this leads to AGI then the world and the civilization as we know it won’t be the same.

The Masterplan

To summarize Tesla’s masterplan:

1. To build and put an exponentially evolving synthetic brain into an able-bodied humanoid robot.
2. Mass produce this robot to make it affordable.
3. Do this in shortest amount of time possible. Then leverage the powerful network effects to make the robots much smarter.

The most important question

WHY? — The most important question. Why build the robots? But before answering that, let me clear the most common misconception.

If the Optimus will replace labour then won’t millions of people lose their jobs? — Yes they will. But that’s the case with adopting any new technology. Automation has been happening since the dawn of time. Important inventions and discoveries like electricity, printing press, computers etc have all lead to people losing jobs. But at the same time, it has freed people to do more creative work and also increased their pay. Eg: A study done by Alan Krueger pointed out that laborers who worked alongside automation commanded wage premiums of 10–15% more than their computer illiterate counterparts.

Naval Ravikant in Joe Rogan’s podcast said that “The question is not is automation going to eliminate jobs. There is no finite amount of jobs. We are not sitting around dividing up the same jobs that were around since the stone age. So obviously new jobs are created and they are usually better jobs and more creative jobs.” Hence technology is actually net positive for employment, both in terms of jobs created and wages offered.

Moreover, the world is currently facing a global labour shortage. A report by Korn Ferry says that there will be an estimated shortage of 85 million workers by the year 2030. This will result in about $8.5 trillion in unrealised annual revenue. So people arguing about robots taking away jobs should first try to explain that.

Now here comes the final and the grandest big idea — Why is Tesla building the robots? — Elon Musk has said that a mass produced general purpose robot like Optimus will bring an age of abundance. What this means is that once we have millions of robots replacing the laborers, there will be no limit to the economy. There will be no limit to how fast we can grow the GDP of the world.

Think about it this way, whenever a product is produced, the two major costs associated with it are the 1) cost of raw materials and 2) cost of labour. Out of these two, the cost of labour is the major and the more expensive one. Now if we replace labour by a robot, the cost of labour decreases dramatically. In fact it decreases so much that we can actually assume it to be negligible. Once we remove the cost of labour out of the equation, we can produce as many quantity of a product as we want. Moreover, if it is a service based business then you can also remove the cost of raw materials from the equation, so now there is actually no limit. According to the fundamental laws of economics, when the supply of a product/ service increases, the price of that product/ service decreases. When this happens, more people can afford the product/ service. This is what Elon Musk means by the age of abundance. This is our best shot at ending poverty.

“It will be a world of abundance. Any goods and services will be available to anyone who wants them. It will be so cheap to have goods and services…It will be ridiculous. The only scarcity that will exist in the future is that which we decide to create ourselves as humans.” — Elon Musk