Electric vehicle maker Tesla (NASDAQ: TSLA) has been on a relentless pursuit of full self-driving (FSD) technology over the years. The recent buzz around version 12.3 of its FSD software has piqued investor interest, hinting at significant advancements.
This focus on FSD has long been a pivotal element in Tesla’s long-term investment narrative, with opportunities ranging from licensing to potential robotaxis.
The Evolution of Version 12.3
What sets version 12.3 of Tesla’s FSD software apart from its predecessors? CEO Elon Musk has been particularly vocal about this iteration, even going as far as instituting a companywide mandate for all new Tesla deliveries to include a FSD demo for customers. The firm has also ramped up marketing efforts around FSD’s capabilities, albeit with a careful mention of supervision.
Tesla’s social media now showcases videos of FSD in action, emphasizing, “Under your supervision, FSD V12.3 can drive your Tesla almost anywhere.” Additionally, the company has rolled out a 30-day free trial of FSD for U.S. customers, indicating a growing confidence in the technology.
In a notable technical shift from the past, Elon Musk mentioned in the latest earnings call that Tesla had replaced 330,000 lines of code with neural nets, a technology that was not available in previous iterations. The integration of artificial intelligence (AI) for planning logic and vehicle controls signifies a significant leap for Tesla in its FSD journey.
A Strategic Business Transition?
While Tesla navigates a challenging period marked by delivery constraints and softer electric vehicle demand, the strategic shift towards FSD could hold the key to its future. Notably, FSD, being a software-driven product, promises higher profit margins compared to traditional vehicle sales, potentially establishing a lucrative long-term revenue stream akin to a razor-and-blade business model.
Although the road ahead remains unclear, with Tesla’s stock prices having dipped significantly, the pivot towards FSD could redefine the company’s business model, setting it apart from conventional automotive manufacturers.
Opportunity in Hindsight
The million-dollar question for investors is the belief in Tesla’s ability to realize FSD. If successful, this moment could be viewed retrospectively as a prime buying opportunity. Analysts anticipate a robust 18% annual growth in earnings over the next few years, although the current forward P/E ratio of 58 may seem lofty, contingent on these projections materializing.
With the autonomous driving sector projected to burgeon into a $2.2 trillion industry by 2030, Tesla’s portfolio diversification beyond FSD, encompassing robotics, AI, and upcoming EV models like the Cybertruck, offers a myriad of growth avenues. The evaluation of Tesla extends beyond traditional metrics, encapsulating its innovation track record and narrative.
Long-term believers in Tesla’s potential could opt for a gradual accumulation of shares using a dollar-cost averaging approach, allowing for monitoring as FSD unfolds over forthcoming quarters.
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