Musk was quite confident in the recently-held Autonomy Day event, stating that Tesla could start deploying its autonomous ride-hailing vehicles by 2020.
The new chip is made by Samsung in Texas.
All cars being produced now have the chip and the company was about halfway through the design process for the next generation chip, which Musk estimated would be about three times better than the current system. "Tesla's autonomy investor presentations conveyed impressive technological leadership but, in our view, left big questions around time-to-market and did not change our views on the impediments to removing the human driver in a commercial service at scale".
It was not the first time this model has had problems with fire, with a Model-S bursting into flames while driving in Los Angeles in June.
More than 60 companies in the USA alone are developing autonomous vehicles. Some are aiming to have their fully autonomous cars begin carrying passengers in small geographic areas as early as this year. Many experts don't believe they'll be in widespread use for a decade or more.
Musk's description of Tesla's controls as "Full Self-Driving" has alarmed some observers who think it will give owners a false sense of security.
"It's hard to wrap my head around a future where my vehicle might be earning me money through autonomous driving while I'm asleep in my bed or play video games but here we are", tweeted professional video gamer Marcel "Dexter" Feldkamp, to which Musk said: "That's exactly the idea". Called the Full Self-Driving Computer, or FSDC chip, it's now being installed in all new Teslas, Musk said.
Global vehicle makers, large technology companies and an array of startups are developing self-driving - including Alphabet Inc's Waymo and Uber Technologies Inc - but experts say it will be years before the systems are ready for prime time.
Despite the fires, Tesla has previously said petrol-fuelled cars were 10 times more likely to catch fire than those powered by electric batteries. Now the self-driving computer costs $5,000, but the price rises to $7,000 if it's installed after delivery.
"The fundamental message that consumers should be taking today is that it is financially insane to buy anything other than a Tesla", Musk said. The SoC, which has been in the works since 2016, has many custom components such as; 12 ARM A72 CPU cores at 2.2GHz, a "modest" 1GHz GPU capable of 600 GFLOPS, a camera interface to "ingest 2.5 billion pixels per second", on chip network, LPDDR4 DRAM, an ISP with 24-bit pipeline, and H.265 video encoder, a auto and software safety system.
"Vehicles that don't have Lidar, that don't have advanced radar, that haven't captured a 3-D map are not self-driving vehicles", Ken Washington, Ford's chief technical officer, said during a recent interview with Recode.
But Musk trashed Lidar on Monday, calling it a "fool's errand".
"They're expensive sensors that are unnecessary", the brash CEO told investors.