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For months now, Tesla CEO Elon Musk has been telling the world that his automaker is really an artificial intelligence company. As far as some analysts are concerned, he may be right about that.
In a new note to investors, Piper Sandler analysts say Tesla “may have solved the self-driving puzzle,” before asking clients not to roll their eyes. The analysts, led by Alexander Potter, acknowledge that Musk has been spreading hyperbole for at least seven years now — but they say Tesla’s latest update to its Full Self-Driving (FSD) tech appears promising. FSD is Tesla’s name for its driver-assistance system. Over the past few years, California’s DMV, some Tesla drivers and a few Senators have accused Tesla of exaggerating the capabilities of its software.
“There have been 90+ updates to the FSD system in the last four years, and fully autonomous Teslas still don’t exist,” Potter wrote. However, “judging by user reviews on the X platform, version 12.5 is revolutionary.”
Tesla last week introduced the latest version of FSD, which features earlier and more natural line changes, to select users, according to Not a Tesla App. Usually, the drivers who receive the latest updates are long-time testers and employees, among others.
Musk said Monday that the update is now being rolled out to the general public, may result in some less-than-positive reviews thanks to the larger sample size. The release comes about a month earlier than expected, Deepwater Asset Management’s Gene Munster said.
“If investors own TSLA at this valuation, we think they must implicitly believe in FSD,” Piper Sandler said, echoing similar sentiments from Deutsche Bank regarding Tesla’s push toward autonomous driving.
Musk has made expanding FSD adoption a key point of Tesla’s long-term push toward fully driverless vehicles and a fleet of self-driving robotaxis. In order to make progress in developing the software — and win over regulators — Tesla needs to keep collecting data.
As of its second quarter, Tesla customers have driven some 1.6 billion miles with FSD enabled. And with the rollout of FSD version 12.5, Musk has said Tesla will ask for regulatory approval for its tech in Europe, China and other countries “pretty soon.”
After a lack of success in boosting adoption, Musk in March mandated that all new customers were required to be given a test ride using FSD, with the company later offering customers a free one-month trial that had extremely limited success. Tesla has also repeatedly slashed the price of FSD, which now costs $99 per month for U.S. drivers. During Tesla’s second-quarter earnings call, CFO Vaibhav Taneja said he expects FSD to drive sales, mainly thanks to its lowered price.
Piper Sandler expects FSD to cost more than $500 per month by 2035, when it estimates that 49% of new customers will have opted-in for the software and 40% of existing owners will opt-in. By 2043, the end of the firm’s forecasting model, 87% of new buyers will have adopted FSD and 100% of existing owners will have taken the leap.
“We also think Tesla will eventually sell EVs for ~$31k apiece, at 0% gross margin,” Potter wrote, “but ultimately, just like cheap flip-phones, we don’t think anyone will buy non-FSD cars.”
Tesla stock jumped more than 5% in midday trading, although shares are down 7% year-to-date. Morgan Stanley on Monday named Tesla its “top pick” in the auto industry, replacing Ford Motor stock after a poor quarter disappointed investors. Ford shares have dropped by more than 19% since it reported earnings last Wednesday.