Tesla has been working on Full Self-Driving (FSD) for several years in an effort to provide its customers with Level 5 autonomous driving. The company has achieved great success so far, prompting many customers to purchase the FSD package. However, over time and with more success in autonomous driving, Tesla will be able to generate huge profits from the sale of FSD, from $600 million in 2021 to $102 billion in 2032, according to Loup Funds.
Loup Funds believes FSD will have a strong impact on Tesla's bottom line. The manufacturer recently officially launched a subscription option for FSD, which will significantly expand the targeted market through monthly payments. This is an important step on the long-term path to increasing margins, which will strengthen the company's operating model. FSD Subscription makes it possible to shift the cost from a one-time payment of $10,000 to $199 per month, which will undoubtedly accelerate its implementation. Since owners can subscribe for one month, Loup Funds estimates that roughly 20% of annual buyers will try this feature. The firm says that initially, most users will unsubscribe quickly, but over time as capabilities are added, retention will build.
Loup Funds estimates that over the next decade, booked operating profit from FSD upfront and subscriptions will increase from $600M in 2021 to $102B in 2032. "This implies today that 20% of annual buyers purchase FSD upfront and 3% of the remaining eligible vehicles subscribe. As features are added over the next five years, we believe those numbers will increase to 31% and 15% respectively, climbing to 45% and 34% in ten years. That means in 2031, about 80% of Teslas on the road will have FSD. As mentioned, looking past a decade, we expect full autonomy will be a required feature to sell cars globally. In terms of operating profit, we're modeling for operating margin to increase from 42% this year to 64% in a decade."
The firm points out that it is ultimately for Tesla investors to decide what multiple to assign to the company’s FSD profits. They should pay attention to the fact that there are opportunities to increase profits. Even assuming that Loup Funds estimates are too optimistic and the company does a third of the FSD profits in 10 years that they are predicating, applying a 25x multiple on those profits suggests FSD alone is worth $850B in a decade, compared to the company's current market cap of $620B.
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