- Wednesday, October 16, 2024
Tesla saw a significant drop in its stock price following the launch of new hardware. However, analysts suggest that software may have played a bigger role in this decline.
On Friday, Tesla's shares experienced a disappointing trading session, falling by 5.1%, while the S&P 500 saw a slight increase of 0.2%. The Nasdaq Composite, on the other hand, remained unchanged.
Most experts, including reputable sources, primarily focused on the newly launched version of the Model 3 in China and Europe. Although a refreshed model would typically be seen as positive news, there seems to be a general apathy towards the release. This could be due to Tesla's stock already surging by 18% in the two weeks leading up to Friday's trading or investors expecting more significant upgrades to the new Model 3. Notably, enhancements include a new interior design and an extended per-charge driving range.
However, another factor that contributed to the decline in Tesla's stock price was the company's decision to decrease the price of its Full Self Driving (FSD) software. Previously priced at $15,000, the FSD software now costs $12,000. FSD is Tesla's most advanced driver assistance feature, and CEO Elon Musk envisions it transforming Tesla vehicles into fully self-driving cars in the future. Despite this, it is crucial to note that drivers must remain attentive while using any of Tesla's driver assistance features.
Unexpectedly, a price reduction for FSD seemed unlikely. In July, Musk stated during Tesla's second-quarter earnings conference call that "the price of FSD...is actually very low, it’s not high." He further emphasized that if the vehicle becomes truly autonomous, its value would increase substantially. Thus, $15,000 would be a bargain for the FSD software.
In conclusion, while the hardware launch played a role, Tesla's stock decline appeared to be primarily driven by investors' lukewarm response to the new Model 3. Additionally, the reduction in price for Tesla's FSD software raised some concerns.
Tesla Lowers Price of Full Self-Driving Software Subscription
Tesla has recently announced a price reduction for its Full Self-Driving (FSD) software subscription, with hopes of increasing adoption rates. During a conference call, Tesla CEO Elon Musk mentioned the possibility of users testing FSD through a monthly subscription. However, the company has not provided any further comments regarding this change.
Canaccord analyst George Gianarikas believes that the price cut reflects lower than expected FSD penetration rates. He suggests that this reduction is an effort by Tesla to accelerate its "razor-razorblade model," with the car being the "razor" and the FSD software as the "razorblade."
Gianarikas rates Tesla stock as a Buy and projects a price target of $293 per share.
While Tesla has not disclosed specific numbers, it was estimated during the March investor day that around 400,000 customers had purchased FSD. Given Tesla's global sales of approximately four million cars, this indicates a take rate of about 10%.
To achieve profitability at the new price point, Tesla's take rate would need to improve to around 13%. Moreover, for the company to break even on gross profit generated from FSD sales, the take rate would need to increase even further, closer to 14%, taking into account average software profit margins.
If the take rate remains unchanged despite the price reduction, Tesla could potentially risk over $130,000 in gross profit in the final four months of this year. While this may seem minimal, it could still have a negative impact on investor sentiment.
It remains to be seen how this price adjustment will impact Tesla's overall FSD adoption and profitability moving forward.
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