Morgan Stanley believes that Tesla may eventually get more profits from selling software subscription services, more than buying cars. Tesla has always provided paid services to customers through software. Since the year before last, the company has charged a monthly traffic fee of $10 for the advanced connection feature.
Tesla also sells corresponding software functions through its mobile app. But recently Tesla launched a fully autonomous driving (FSD) service for $199 per month. Several analysts have been trying to evaluate Tesla’s business in this area. Morgan Stanley analyst Adam Jonas released a new report trying to value Tesla’s software-as-a-service business. The monthly price of $199 is actually higher than Jonas expected.
He said: The monthly subscription fee of US$199 is much higher than our expectations. The prepaid price of the FSD function was previously US$10,000. If Tesla’s electric vehicles have a service life of 15 years, which is 180 months, the monthly fee is about US$56.
We can assume that by 2026 or 2027, 60% of Tesla’s electric vehicles will have an average monthly software subscription of US$100, including autonomous driving, network connection, performance enhancement, charging, Maintenance and other software services.
At present, Tesla has approximately 1.5 million electric vehicles. But Morgan Stanley predicts that this number will increase to 35-40 million by the end of the 1920s. They believe that by that time, Tesla’s software business may exceed the hardware business:
We believe that the value of Tesla’s recurring software revenue may exceed the value of its hardware business. Over time, we expect Tesla to introduce a wide range of services to users and disclose more financial information. It seems that this shift will help promote stock revaluation.
However, after the report was released, Morgan Stanley did not adjust Tesla’s $900 target stock price. Tesla’s “software as a service” trend deserves the industry’s attention, but when it comes to the FSD function that Tesla is delivering, it is still difficult to justify the $199 monthly fee.
It’s hard to say the difference between the Enhanced Autopilot that Tesla owners spend $99 a month and the FSD that costs $199 a month. Most of the current Tesla subscription services are still users who pay $99 a month for the traffic light and stop sign control function.
