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Morgan Stanley believes Tesla (TSLA) might end up making more money selling software subscriptions than selling hardware, like its actual vehicles.
Tesla has tended to offer paid services through software.
The automaker has started charging $ 10 per month for its “premium connectivity” features.
Tesla has also started selling software features in packages through its mobile app.
But now Tesla is taking it to a whole new level with its recently launched Full Self-Driving monthly subscription for $ 199 per month.
Several analysts have attempted to assess this aspect of Tesla’s business.
Adam Jonas, a Morgan Stanley analyst, tried to fit this into their model early on with a note about it last year.
Now that Tesla has launched the FSD subscription, Morgan Stanley has released a new memo attempting to assess Tesla’s software as a service activity.
The price of $ 199 per month was actually higher than Jonas expected:
“The monthly subscription upgrade fee of $ 199 is considerably higher than we expected. The initial price of $ 10,000 for the FSD implies approximately $ 56 / month over a vehicle’s useful life of 15 years (180 months). We have assumed that Tesla will generate $ 100 / month Average Revenue Per Unit (ARPU) per Monthly Active User (MAU) by 2026 or 2027 for 60% of its vehicle fleet. This estimate includes range, connectivity, performance improvement, charging, maintenance, and other services.
Tesla currently has a fleet of around 1.5 million vehicles, but Morgan Stanley predicts it will grow to 35-40 million by the end of the decade.
At this point, they think Tesla’s software business might be more important than its hardware business:
“We believe it is possible that the value of Tesla’s recurring software revenue exceeds the value of its hardware business. Over time, we anticipate a wide range of services deployed for Tesla users and increasing financial disclosure from the company to help with the transition from traditional auto analysts’ equity analysis and coverage ( both buy and sell side) to technology / platform analysts. In our opinion, this transition may contribute to a further revaluation of stocks over time. “
However, Morgan Stanley did not update its price target of $ 900 on the Tesla share price after the announcement.
Taking Electek
This software-as-a-service trend at Tesla is certainly something to watch out for, but when it comes to fully autonomous driving, Tesla has yet to deliver.
For now, the prices are difficult to justify.
The $ 199 Full Self-Driving Membership is one thing, but the $ 99 for Tesla owners with Enhanced Autopilot is hard to justify.
People who buy the subscription right now are basically paying $ 99 per month for the “Traffic Light and Stop Sign Control” feature:
Just having the subscription is going to improve the turnout even further, but Tesla is actually providing a complete autonomous driving system is the most important part, and the way forward for that to happen is quite clear. .
What do you think of this development of Tesla’s software as a service trend? Let us know in the comment section below.
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