Tesla's in-app purchases will play a significant role in its future because it could help the EV maker reach Apple-level revenues. Hardcore Tesla bulls predict that in-app purchases could help turn the 100-billion dollar company into a trillion-dollar one.
The Elon Musk-led company addressed its plans for in-app purchases in its Q4 Shareholder's Letter. "In Q4, we launched Premium Vehicle Connectivity in the US for $9.99 (plus tax) per month. This enables our customers to stream music or videos, browse [the] internet or see live traffic through an embedded connection.
"We also introduced in-app purchases, where our customers can buy various software updates, such as basic Autopilot, FSD, Acceleration Boost, and additional premium features. Software will continue to play a growing role in our business model (emphasis ours)," Tesla wrote.
Credit: Tesla
TSLA skeptics and bears often overlook the EV maker's other sources of potential revenue, focusing solely on the company's automotive business. In-app purchases are probably Tesla's most undervalued and ignored revenue stream.
Analysts don't consider Tesla's in-app purchases in their estimates partly because such revenue streams are usually affiliated with giant tech companies like Apple. Tesla is largely perceived only as an EV maker. Tesla simply isn't seen as a tech company by the majority of analysts, despite the company's proficiency in tech, as shown in the level of innovation in its vehicles.
However, if Tesla does plan to give in-app purchases a more significant role in its business model, its valuation could skyrocket even higher than its already stellar $110-plus-billion market cap. Tesla's in-app purchases could do for the EV maker what it does for Apple.
Apple posted a revenue of $91.8 billion in its fiscal 2020 first-quarter report, which ended on December 28, 2019. According to Statista, Apple customers spent about $54.2 billion on in-app purchases, subscriptions, and premium apps sold on the App Store. These results came after the tech giant launched subscription services to Apple TV+, News+, and Apple Arcade in March 2019. It also introduced Apple Card at the time.
The way Tesla's vehicles are designed, the company could easily offer similar services to its customers. Tesla's infotainment system already has Tesla Theater and Tesla Arcade, which could be utilized like Apple TV+ and Apple Arcade. It already offers one subscription service, namely its Premium Connectivity Package, which costs $9.99 a month. Tesla also sells vehicle software, like FSD and Autopilot, which would be equivalent to Apple's premium apps in its App Store.
So regardless of what analysts think, Tesla is already providing services and products that traditional automakers don't, but tech companies do. Elon Musk explained this point very well during part two of his interview in the Third Row Tesla Podcast. He told the Third Row team that traditional automakers make money from car parts and maintenance services.
Featured Image Credit: Tesla/YouTube
Tesla has tried to move away from this form of revenue stream. For instance, Tesla tries to reduce maintenance costs with its vehicles—and EVs are already much cheaper to maintain than ICE vehicles. Instead of car parts and maintenance services, Tesla has come up with other products and services that complement its vehicles while supporting its mission for sustainability.
Propelled by services such as Premium Connectivity and products such as Autopilot, Tesla has started to create its own ecosystem. For instance, customers who buy Tesla's vehicles are highly likely to buy the company's Solarglass Roofs and Powerwall as well.
Incidentally, Tesla's Solarglass Roof and Powerwall setup also come with an app, which owners could easily check as long as they are connected to the internet. It isn't too hard to imagine a scenario where a Tesla owner subscribes to Premium Connectivity so they can keep an eye on their Powerwall and Solarglass Roofs, all from the comfort of their vehicles. With millions of vehicles on the road and millions of homes with Tesla Energy in the future, a full ecosystem of products from the Silicon Valley-based company seems very plausible.
Featured Image Credit: Tesla Shareholder's Letter
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