Tesla Launches Full Self Driving Subscription Package At $199 Per Month, Aims To Deliver Level 5 Full Self-Driving System
Before buying a Tesla electric car, people are in a bit of dilemma. It is not so easy to decide whether to choose the 9.04 million won (domestic option price based on Model Y) option. Tesla has offered an optional self-driving feature called Full Self Driving (FSD). Currently, what FSD can do is Autonomous Highway Driving (NOA), Auto Lane Change, Auto Park, and Summon. In general, autonomous driving is divided into a total of five levels. Level 5 is fully autonomous driving that does not require human intervention. Currently, Tesla’s autonomous driving stage is evaluated as somewhere between Level 2 and Level 3. In Level 2, the vehicle intervenes in driving, such as correcting lanes or adjusting the speed by itself, but the driver cannot take his or her hands off the steering wheel. Level 3 is the start of full-fledged autonomous driving, in which the actual driving is carried out by the car, and the human participates as a watcher with their hands on the steering wheel. Although Tesla’s self-driving feature still has a long way to go, consumers find it attractive compared to other manufacturers’ features. Tesla has overwhelmingly accumulated the data on the road necessary for autonomous driving. I am thinking about purchasing this option, believing that it will perform better. Of course, many customers were interested, but had to give up due to the high price.
On July 17, Tesla announced a new policy. It was announced that it would provide a one-time, expensive option, FSD, for $199 per month (about 220,000 won). Paying a monthly fee and allowing the autonomous driving function to be installed in your car is the same concept as a subscription. You can use autonomous driving, software for automobiles, with a monthly payment as if you were watching Netflix. Since there is no separate contract, you can cancel the payment at any time when you do not need it. Initially, this service will be offered on a trial basis in some regions, such as the United States, and will be gradually expanded.
“Software revenue will surpass hardware business”
Let’s go back to the past for a moment. FSD’s subscription service didn’t just pop out of nowhere. The electric car company has publicly announced its plans for quite some time. In April 2020, Tesla CEO Elon Musk appeared at Tesla’s first-quarter conference call and first mentioned the FSD subscription model. “Why do you want to offer FSD as a subscription service? Because I think it is an investment for the future, an investment that benefits consumers.”
What’s so great about a subscription service that Musk even brought up the word ‘future’? You can get a hint by looking at how Tesla makes money. 2020 marks a historic turning point for Tesla. It was the first year it made a surplus. It surprised the market with its total sales of $31.5 billion (about 36.35 trillion won) and net profit of $721 million (about 832 billion won). The reason for the surplus was because the automotive sector, which manufactures and sells electric vehicles, performed well. In 2020, Tesla sold 499,550 electric vehicles, a 36% increase from the previous year. The total production was a little less than 510,000 units, so the sale of the jokjok was made. Last year, the automotive division’s gross margin rose significantly from 21% to 26%. Considering that the manufacturing average profit margin is in the single digits, this is a surprising record.
The interesting part is the results achieved by ‘Services and other’. Making and selling electric vehicles takes on the character of a manufacturing industry. However, 7% of the total sales, or $2.36 billion (about 2.6 trillion won), comes from the service sector. Here is a hint about the ‘future’. These expressions appear in the public notice in relation to the service. ‘Consumers who have purchased the option at an additional cost can do over-the-air updates through the Tesla app.’ In order for an ordinary car to add new functions, it is necessary to change the car. Tesla, on the other hand, can update its software to improve existing features or add new features. An update method called over-the-air (OTA) is applied when we update our smartphones.
Some analysts have been focusing on the other side of Tesla’s business. It is because of the possibility of generating profits that have not been seen in the existing automobile industry. Electric vehicles have fewer parts, so their cost of ownership is significantly lower than those of internal combustion engine vehicles. There is no need to change the oil, and the life of consumables such as brake pads is much longer. This point raises two concerns for the existing automobile industry. One is that the profits from the maintenance business will decrease significantly in the electric vehicle era, and the other is that the replacement cycle will be longer than that of internal combustion locomotives.
If the function is improved with an update, the replacement cycle of the car will inevitably be longer. Finding new cash flows is a matter of survival for the auto industry. Morgan Stanley analyst Adam Jonas has been taking Tesla’s FSD subscription model seriously since last year and has passed it on to investors. When this FSD subscription model appeared, he published a new report. The report predicts that Tesla’s electric vehicles, which currently have sold about 1.5 million units, will sell more than 35 million units in 10 years.
And at this point, he predicted that Tesla’s software business could be bigger than the hardware business. He said, “I think there is a possibility that the value of the software revenue will exceed the value of the hardware business. “Over time, Tesla users will be exposed to a broader suite of services, and this transition could help reassess Tesla stock.”
Loup Ventures, famous for investing in innovative companies, offers a similar outlook. We see the FSD subscription model as an important fork in Tesla’s long-term earnings growth. Rube Ventures predicts that 80% of Tesla vehicles on the road will subscribe to FSD by 2031, and the operating profit from FSD will increase from $600 million in 2021 to $102 billion in 2032.
Combination of inexpensive electric vehicles and FSD
As Tesla’s electric vehicles went well, almost all automobile companies, including Toyota, Volkswagen, General Motors, Honda, Hyundai, Ford, Fiat Chrysler, Nissan, and Peugeot, entered the electric vehicle battlefield. People think traditional automakers will be able to catch up with Tesla soon. However, this is only when considering the hardware. In September last year, at Tesla’s ‘Battery Day’, Musk announced that he would definitely launch a $25,000 electric vehicle by lowering the unit price of the battery. The reason why this remark is important is that low-priced electric vehicles go beyond mere price competition. The more cheap Tesla electric vehicles run on the road, the more faithfully the data is gathered and the FSD’s subscription revenue increases. As other companies focus on the electric vehicle transition, Tesla is taking a step forward by envisioning a new business model for the mobility industry that uses automobiles as its platform. “Automobile investors and analysts will have to learn software-related investment terminology like ARPU (average revenue per subscriber) because of Tesla’s attempt to conquer self-driving cars,” said Barron, a US economic media outlet. This means that Tesla is ‘stepping up’ again.
- On Saturday, Elon Musk’s Tesla Inc (NASDAQ: TSLA) launched its Full Self-Driving (FSD) subscription for its driver-assistance software package for $199 per month, Reuters reports.
- Tesla offered the Full Self-Driving package for a one-time payment of $10,000.
- The FSD feature would cost $99 a month for those who previously bought the Enhanced Autopilot package.
- According to Tesla, vehicle owners can cancel their monthly FSD subscription at any time.
- The company has said that the current features do not make the vehicle autonomous. Instead, the vehicles require a fully attentive driver.
- The subscription service is available in vehicles equipped with Full Self-Driving computer 3.0 or above. Upgrading to the new hardware will cost $1,500.
- FSD capability subscriptions are currently available to eligible vehicles in the United States.
- According to Electric, Tesla aims to deliver a true level 5 full self-driving system.
- Last week, the company started releasing over-the-air software updates for its FSD Beta version 9. This beta version was first declared in 2018.
- Tesla has been testing its new semi-autonomous driving software for city streets and last week released “FSD Beta v9” to a limited number of customers.
- The new FSD feature enables drivers to use several advanced driver-assist features via Autopilot mode on local, non-highway streets.
- The vehicle currently has automated driver-assist features like Navigate on Autopilot, Auto Lane Change, Auto park, Summon, Full Self-Driving Computer, and Traffic Light and Stop Sign Control
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