Has Elon Musk given up hope that growth can still be achieved despite the tough conditions at the end of the quarter? Tesla's CEO is willing to accept even a drop in car sales as he hopes more drivers will opt for the expensive fully self-driving technology, a $12,000 option.
“Very few people actually understand how well[monitored]FSDs actually work,” he told staff in an internal email. “Going forward, in North America we will be required to install and activate FSD V12.3.1 and allow customers to take a short test drive before handing over the vehicle. We understand that this will slow down the delivery process, but It's a difficult requirement.”
According to the CEO, it's not just new owners who have a chance to participate. “All FSD-capable U.S. cars will be available for a one-month trial this week.”
There is a financial incentive to require FSD demos at the time of delivery.
(Tesla's average selling price is $45,000, manufacturing costs are $36,000, and the additional sale of the $12,000 software add-on significantly increases gross profit)
But strategic considerations are perhaps most important.
Happy… https://t.co/Wgd1qeBJmI
— Brett Winton (@wintonARK) March 25, 2024
FSD demand is struggling after initial hype in late 2022. Tesla initially limited its testing program to U.S. customers with high safety scores, but opened the beta test to anyone willing to pay.
However, the beta version that allows FSD activation on all roads has not been approved for use outside of North America and has proven to be very unreliable with each update.
Interest, therefore, remained primarily limited to Tesla's more hardcore enthusiasts, who at one time were willing to pay the hefty price of $15,000 for the privilege of being a tester at the forefront of technology.
Licensing negotiations with other automakers also proved fruitless.
In January, Musk estimated that the number of cars on North American roads with FSD beta installed reached 400,000.
If true, this number has barely changed in about a year.
Improved incremental changes with new AI-enabled software
Things could start to change with the switch from hard-coded commands to neural networks in C++ software in December 2023.
Since then, hopes have been mounting that Tesla may finally have a “ChatGPT moment” when cars can drive fully autonomously without human supervision.
That hasn't happened yet, but the recently released v12.3 received an overwhelmingly positive response.
Mr. Musk also said that Tesla In his words, AI training is no longer limited to computing.
Such breakthroughs would go a long way toward justifying Tesla's lofty valuation, especially at a time when growth has stalled, with notoriously high software profit margins reaching double digits.
This is because FSD has an initial cost for development and ongoing updates, but there are no incremental costs for each additional license.
Therefore, FSD could theoretically be easily expanded thanks to over-the-air updates pushed to the fleet. This is because every Tesla manufactured comes with the necessary computer and the software can be installed after purchase.
The rise in FSD demand is desperately needed as quarterly sales are likely to decline year-over-year for the first time since the pandemic caused a slight decline in the second quarter of 2020.
Brett Winton, senior analyst at ARK Invest, supported the automaker's decision to move more collaboratively forward with proprietary technology.
“People will probably see this as Tesla trying to sell FSD,” he says. I have written on monday. “The reality is that FSD will sell Tesla.”
