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Morgan Stanley analyst believes that Tesla could become even more successful if it expands its business model to generate revenue from software.
Morgan Stanley analyst Adam Jonas wrote in a note to investors that diverting Tesla's business model from selling cars to generating high-return recurring software revenue is key to unlocking more optimistic scenarios for an electric car company.
Tesla's Full-Self Driving (FSD) is an advanced driver assistance system, which the company now selling as a software package on its vehicles for $7,000, while Autopilot is part of all vehicles. Come July 1, Tesla's FSD will cost $8,000 due to a $1,000 price rise announced by Tesla CEO Elon Musk on Twitter few days ago.
Source: Tesla
Jonas wrote that FSD is a highly profitable revenue stream even now, but the attach rates are just over a quarter of the vehicles sold. Tesla's revenue from software and services is less than 5%.
According to the analyst, expanding the business can significantly increase Tesla's profitability in the future. He believes that this business alone can help boost auto gross margins above sell-side projections.
"If software can become a large proportion of Tesla's revenues and profit (we estimate ~ 50% of gross profitability in a" blue sky "scenario) we believe investors will be willing to pay a higher multiple for Tesla's shares."
Jonas said that despite the risks, investors should consider this opportunity in more detail and pay more attention to it in the future.
About the Author
Eva Fox
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.
