Demand for Tesla’s high-profile self-driving upgrade appears to be slowing down. The take rate for the full-self driving (FSD) software upgrade among Tesla car buyers declined from an estimated 37% in 2019 to about 22% in 2020 and to levels of around 12% this year so far.  There are likely a couple of factors driving the declining interest. Firstly, Tesla has been increasingly emphasizing its Model 3 and Y vehicles, which have a lower starting price and this could be reducing attach rates for the self-driving package, which is likely a more popular option on higher-end cars. Tesla has also bumped up pricing on the FSD package, from levels of around $5,000 in early 2019 to a more significant $10,000 currently, and this could also be hurting demand. The self-driving system has also faced some regulatory scrutiny recently relating to cases of collisions of Tesla vehicles with parked vehicles of first responders. This could also be making some customers apprehensive about opting for the system.
Overall, we estimate that Tesla’s self-driving software sales declined from around $900 million in 2019 to about $800 million in 2020. However, we expect the number to rise to around $1 billion in 2021 and rise further to about $1.4 billion in 2022. Longer-term growth could be supported by Tesla’s solid delivery outlook and its recent move to make the software available on a subscription basis at about $200 per month. See our analysis on How Big Is Tesla’s Software Business? for more details on Tesla’s self-driving software business and how it contributes to Tesla’s overall revenues.
[11/23/2021] Tesla’s Self-Driving Business Is Powering Ahead Despite Setbacks
Tesla stock (NASDAQ: TSLA) is up by almost 60% year-to-date, with its market cap crossing the rarefied $1 trillion mark recently. The run-up is partly due to Tesla’s solid execution, with deliveries for this year poised to grow by almost 70% to about 850,000 vehicles, despite the ongoing semiconductor shortage. Tesla’s sizable lead in the self-driving market has also traditionally been a very big driver of the company’s valuation. So how far ahead is Tesla’s self-driving system versus peers, and how does it stack up versus driver-driven vehicles. See our dashboard analysis on Just How Far Ahead Is Tesla In The Self-Driving Race? for more details. Parts of the analysis are summarized below.
Miles logged are a crucial metric for autonomous cars, as self-driving algorithms are based on machine learning, and more training data makes algorithms smarter. Tesla last reported that its vehicles had logged a total of 3 billion miles on Autopilot as of April 2020 – up from a cumulative 1 billion miles it reported in late 2018. At this rate, it’s very likely that the current number would stand at well over 6 billion miles. This is ahead of its nearest rival, Waymo (backed by Alphabet), which reported that its test vehicles had logged over 20 million miles on public roads as of February 2021.
Tesla’s self-driving technology appears to be very effective and it also keeps getting better. For perspective, Tesla publishes vehicle safety reports every quarter, and based on its Q2 2021 data, it registered one accident for every 4.41 million miles driven with Autopilot engaged. This marks an improvement from one crash every 3.3 million miles in Q2 2019. Autopilot also appears to be much more effective compared to manually driven vehicles. Tesla said that its vehicles driven without Autopilot engaged in Q2 2021 recorded about one accident for every 1.2 million miles driven – possibly implying that accidents were 3.6x less likely with Tesla’s Autopilot systems engaged.
That being said, the Autopilot initiative has faced some setbacks recently. The system has come under increasing regulatory scrutiny with the National Highway Traffic Safety Administration (NHTSA) investigating cases of collisions of Tesla vehicles with parked vehicles of first responders. Autopilot crashes, although rare, also tend to get a disproportionate amount of coverage in the media. The take rate for Tesla’s full-self driving software among Tesla buyers is also apparently trending lower, falling from levels of around 40% in late 2019 to about 11% as of Q2 2021 , likely due to Tesla’s recent price increase on the software, a larger mix of lower-priced vehicles sold by Tesla (such as the Model 3 and Model Y) and recent negative coverage. However, we expect Tesla’s autonomous software sales to only rise, in the long run, driven by growing deliveries and Tesla’s recent move to make the software available on a monthly subscription basis.
Tesla stock (NASDAQ:TSLA) is up over 150% year-to-date, with its market cap crossing $200 billion. Hard to fathom. Why? When you look at a more traditional metric like the number of cars sold, Tesla is tiny – less than 400K cars sold last year, while many of the bigger companies, Honda, GM, Ford, Toyota, each sold over 5 million cars. Correct, Tesla sold a fraction of the cars sold by many of the other car companies and is more valuable than all of them.
So what’s driving Tesla’s value?
It’s partly the improving fundamentals (better than expected Q1 results and Q2 deliveries, strong sales in China), but there has to be more. Investors are likely betting that the disruption caused by Covid-19 could solidify Tesla’s position as the leading electric and autonomous driving play – two separate, and perhaps the most powerful trends in the auto industry. At the same time, there are signs some mainstream automakers are slowing down their investments in the space while they navigate a collapse in sales and manage significant near-term financial pressures.
For instance, BMW and Mercedes-Benz announced that they will end their automated driving alliance, for now, citing current business and economic conditions, among other factors.  Here’s the thing: the primary function of cars is to drive. Tesla’s focus on self-driving while some others are either backing out or showing lackluster progress, is akin to a small cereal manufacturer doubling down in the “sweet” category of breakfast cereals, while others say they’ve chosen to back out of it. Can you believe that?
It’s not even close: we lay out the numbers on how big could self-driving be, and contrast with others in our interactive dashboard analysis: Just How Far Ahead Is Tesla In The Self-Driving Race?
Miles logged are a crucial metric for autonomous cars, as self-driving algorithms are based on machine learning, and more training data makes algorithms smarter. Tesla continues to make solid progress on this front, reporting that its vehicles had logged a total of 3 billion miles on Autopilot as of April 2020 – up from a cumulative 1 billion miles it reported in late 2018. This is well ahead of its nearest rival, Waymo (backed by Alphabet), which reported that its test vehicles had logged 20 million miles on public roads as of January.  While Waymo has been “testing”, Tesla is simply doing it! The strategy is simple yet bold: sell cars directly, add self-driving features with a whole bunch of warnings, and collect data while users use it. Shouldn’t Google buy Tesla or perhaps another carmaker and do the same? See how Tesla’s value could rise to $1.5 trillion aided by a deal with Google.
Tesla also appears to be more confident about the capabilities of its system. The company bumped up pricing for its full-self driving software upgrade from $7,000 to $8,000 starting July 1, and CEO Elon Musk has indicated that prices could only keep inching upward going forward as capabilities are added. Tesla is toying with the idea of offering its self-driving software as a subscription service – a move that could boost recurring revenue streams for the company while potentially increasing the adoption of the package.
Is this a good time to jump into Tesla stock? Yes – especially if you believe in this one important Tesla metric: Tesla’s time horizon. On the flip side, for a more balanced, risk-adjusted view see our analysis Tesla Valuation: Jump Into Tesla, Wait, Or Get Out?
Autonomous driving cars have emerged as a hot buzz word in the automotive industry over the last few years, with companies ranging from mainstream automakers such as General Motors to Silicon Valley startups such as Waymo (backed by Alphabet) looking to make a dent in the market. However, electric vehicle pioneer Tesla (NASDAQ: TSLA) appears to have a sizable early lead in this space both in terms of autonomous miles driven as well as monetization of its self-driving technology. Having delivered over 780k vehicles since its inception, most of which come with pre-installed self-driving capabilities that users can unlock by paying for software, the company has developed a meaningful self-driving business. In this analysis, we compare Tesla’s miles logged with rivals and size up the near-term revenue potential for its autonomous driving software.
Tesla Is Approaching 2 Billion Self-Driving Miles Driven
- Tesla’s total autonomous miles logged has grown exponentially from 0.1 billion in May 2016 to an estimated 1.88 billion as of October 2019.
- This is a crucial metric, as self-driving algorithms are based on machine learning, and more training data typically makes the algorithms smarter.
Tesla’s Log Of Autonomous Driving Data Is Orders Of Magnitude Higher Than Rivals
- Over 2018, Tesla likely logged about 500 million self-driving miles across all geographies.
- In comparison, rival autonomous driving tech companies Waymo and GM’s Cruise drove just 1.3 million and 447k miles, respectively, in California – their primary test market, which likely accounts for a bulk of their total miles logged.
Tesla’s Lead May Be Wider Still, As It Continuously Gathers Data From All Its Vehicles
- Tesla’s autonomous driving hardware is based on mature technology such as Radar, Ultrasonic, and Passive video, which is cheaper than some rivals who use LIDAR – a laser-based system.
- This enables the company to equip the hardware as standard in all its vehicles, irrespective of whether or not a user enables it by paying money.
- As the company’s vehicles are estimated to have driven over 16.8 billion miles in total thus far, this could be further enhancing Tesla’s log of driving data.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.
|S&P 500 Return||0%||25%||110%|
|Trefis MS Portfolio Return||2%||47%||295%|
 Month-to-date and year-to-date as of 12/8/2021
 Cumulative total returns since 2017