Elon Musk’s Long-Term Bet on Tesla Full Self-Driving

Posted on May 06, 2023 by Peter McGuthrie

During Tesla’s recent first-quarter earnings call, CEO Elon Musk focused on Full Self-Driving as a future value driver for the company. While some analysts have shared concerns around price cuts affecting the company’s margins, Musk reassured investors that Tesla’s FSD could still bring in significant revenue — even if its cars sold at zero profit.

Above: Tesla vehicles in front of a service center (Image: Casey Murphy / EVANNEX).

In the coming years, Musk expects FSD to become a significant profit driver for Tesla, as detailed in the automaker’s recent Q1 earnings call (via Reuters). Amidst continued shareholder concern over price cuts, Musk emphasized a focus on continually increasing the volume of its cars on roads, knowing that they’re all capable of autonomy through FSD.

Musk called Tesla’s current role in the auto industry a “uniquely strong strategic position,” noting that the automaker is the only company making cars that universally have hardware capable of autonomy.

"We're the only ones making cars that technically, we could sell for zero profit for now and then yield actually tremendous economics in the future through autonomy," Musk said during the call. "I'm not sure how many people will appreciate the profundity of what I've just said, but it is extremely significant."

The statements came as some analysts covering Tesla shared concerns about recent price cuts, especially as Q1 earnings missed on profit margin expectations. One such analyst included Morningstar’s Seth Goldstein.

"The market wants to see that Tesla management has a tangible plan to boost automotive gross margins and companywide operating profit margins over the coming quarters and in the next year or so," Goldstein said. "I also think the market wants to see a growth plan that does not involve continuous price cuts."

During the call, Musk cited macroeconomic uncertainty as a reason for the miss, emphasizing that the company still had the best operating margins in the auto industry. And with the Model Y becoming the best-selling non-pickup vehicle in the U.S. in Q1, Musk explained, the company was setting the stage for a future of serious revenue potential with FSD.

“We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” Musk said in his opening remarks. “However, we expect our vehicles, over time, will be able to generate significant profit through autonomy.”

Above: Tesla posts record quarterly deliveries after price cuts (Video: YouTube / Reuters).

Tesla’s FSD beta currently only operates at a Level 2 autonomy (out of 5) and still requires full driver monitoring of traffic at all times. Still, the system is continually learning from real-world data and will only continue to improve.

Owners of any new Tesla vehicles can purchase the FSD beta software for $15,000. As Musk has noted, the significance of all of its current-generation vehicles having the necessary hardware to someday become autonomous is vast — and could be a key driver of future profits.

“So we do believe we're like laying the groundwork here, and that it's better to ship a large number of cars at a lower margin, and subsequently, harvest that margin in the future as we perfect autonomy,” Musk added. “This is an extremely important point.”

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Sources: Reuters / YouTube