Full Self-Driving (FSD) is an option that can currently be purchased for $10,000. All new vehicles, as well as most existing ones, can be installed with this feature, which means that Tesla can generate huge amounts of cash flow and profits if enough customers choose FSD. The company is reluctant to provide financial information about the FSD, but Spark Spread/YouTube has managed to get a handle on this.
In accordance with Generally Accepted Accounting Principles (GAAP), Tesla can only register a portion of the purchase price as income from FSD, while the remainder of the balance sheet is classified as a liability called Deferred Revenue. In Tesla's case, FSD is not fully deployed, so the company still has to provide it to customers who bought it. As soon as Tesla delivers its promise, it will remove this obligation from its balance sheet, and recognize this amount as income.
Tesla's CFO Zach Kirkhorn, during the announcement of Q1 2020 results, said that the price of Tesla FSD is only about 50% recognizable as GAAP Revenue. At the end of 2019, information was also available that Tesla had an FSD Take Rate of 27%. Spark Spread calculates FSD intake using a formula.
As a result of calculations, we get:
But, FSD continues to improve because Tesla is constantly releasing new features, and delivering the promised functionality to its customers.
For three quarters of 2020, the Deferred Revenue balance attributable to FSD was $658 million. By calculating the quarter-to-quarter earnings ratio, Spark Spread got a recognizable percentage for each quarter.
According to Spark Spread estimates, at the end of Q3, the number of Tesla owners without FSD was 700,000. This is a conservative figure, however, it would be reasonable in terms of financial modeling. This will correspond to approximately 7,000 updates in Q3 2020, which will correspond to an approximately 5% increase in Take Rate. In fact, at the moment, Tesla receives about $200 million in income from FSD in one quarter.
But, in reality, soon $200 million will grow to $1 billion per quarter, on average, over the next 12 months. The price of FSD has already increased and, as Elon Musk promised, will continue to do so.
The functionality of FSD continues to grow as well. Already now, FSD Beta can drive along city streets, successfully and safely bypassing obstacles and giving way to pedestrians. The more functionality there is, the more Tesla owners will want to purchase it.
In addition to profits from the direct sale of FSD, Tesla will also profit from subscriptions. Despite the fact that some customers will use the subscription option instead of paying the full purchase price, this will ultimately lead to a significant increase in revenue from the use of FSD. And, it cannot be overstated: the more perfect FSD becomes, the sooner Robo Taxis will appear, and the higher FSD sales and profit will be.
© 2020, Eva Fox. All rights reserved.
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About the Author
Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.