Tesla's FSD Price Cuts Could Boost Shares, Says RBC Analyst
Tesla, the renowned electric vehicle (EV) manufacturer, has seen a surge in subscriptions to its Full Self-Driving (FSD) software in the second quarter, thanks to promotional offers and price cuts. According to RBC analysts, a more significant reduction in subscription prices could be a major catalyst for Tesla's stock.
Subscription Growth Amid Price Cuts
RBC noted that the cumulative miles driven using Tesla's FSD software increased by 60% in the second quarter compared to the first. This growth followed a free trial in March and a reduction in the subscription price from $200/month to $99/month.
Despite this increase, the penetration of FSD in Tesla's fleet remains in the single digits, which is weaker compared to its industry peers. The brokerage firm argues that if Tesla further reduces the price of its FSD offering, it could significantly boost subscriptions.
Potential Impact on Margins and Share Value
Reducing the FSD price could lead to immediate improvements in margins and enhance the autonomy narrative, which could positively affect Tesla's share value. This move could also emphasize the potential for Tesla to license FSD to other Original Equipment Manufacturers (OEMs).
RBC's Price Target Adjustment
Despite these optimistic projections, RBC has cut its price target on Tesla to $224 from $227. This adjustment comes amid a weaker delivery growth forecast for 2025, following disappointing earnings and deliveries in the second quarter. Tesla faced challenges such as softer margins, increased competition, and production disruptions.
CEO Elon Musk's Vision
CEO Elon Musk has continually highlighted the potential of FSD and robotaxis as significant revenue drivers. However, FSD remains a niche product for Tesla, and the launch of its robotaxis has been delayed from August to October.
Other Revenue Streams
Beyond FSD and robotaxis, RBC noted that Tesla's energy storage revenues are set to increase, and the company is also expected to benefit from higher regulatory credits.
Stock Performance
Tesla's stock has fallen by nearly 23% this year, impacted by declining deliveries and a series of price cuts, which have affected margins due to increased competition in China.
In summary, while Tesla faces several challenges, reducing the FSD subscription price could be a strategic move to enhance its market position and boost its stock performance.
