Tesla TSLA announced it completed regulatory approval for its autonomous driving assistance software. The firm’s stock was up 10% at the time of writing on the news.
Why it matters: Tesla’s electric vehicle competitors in China are launching their own Level 2 autonomous driving systems (wherein the vehicle assists drivers with steering and acceleration or deceleration).
Tesla FSD software’s approval reduces the risk that consumers in China will choose another vehicle over the technology. This should help Tesla improve deliveries in China, which fell during the first two months of the year.
The bottom line: We maintain our fair value estimate of $250 per share. At current prices, we view Tesla shares as fairly valued, with the stock trading a little above our fair value estimate but in 3-star territory. We recommend investors wait for the stock to offer a margin of safety before considering an entry point.
Big picture: Tesla’s FSD approval should help improve near-term deliveries in China. However, in other markets, Tesla charges a monthly subscription fee for the use of the software. This is in contrast to competitor BYD, which offers its Level 2 autonomous driving software for free.
As Tesla has only received approval for its Level 2 FSD software, we question whether consumers are willing to pay a monthly subscription fee for software that may only be marginally better than BYD’s free version.
Eventually, Tesla may have to cut its FSD price in China. While FSD would still drive deliveries in China, a lower price would reduce Tesla’s total addressable market there.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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