I'm assuming it's a cost because it makes sense to me. His goal was to build full-self-driving (FSD) into ever car and sell the service as a subscription.

If you add another $500 in components then that's a lot of cost (probably a lot cheaper today but this was 10 years ago). Cameras are cheap and can be spread around the car with additional non-FSD benefits where as lidar has much fewer uses when the cost is not covered. I think he used his "first-principles" argument as a justification to the engineers as another way for him to say "I don't want to pay for lidar, make it work with the cheap cameras."

Why else would management take off the table an obviously extremely useful safety tool?