Tesla FSD and AI Will Drive Share Price Like Amazon AWS

Morgan Stanley raised their target on Tesla on Sunday to $400 and this caused Tesla shares to surge about 10% on Monday. I, Brian Wang of Nextbigfuture, talked Herbert Ong about how I see FSD Income growth unfolding over the next few years.

This is a follow up to my Monday breakdown of what the 66 page Morgan Stanley report highlights for Wall Street.

Everyone on Wall Street knows the story of Amazon AWS (Amazon Web Services) being critical for Amazon value going from $150 billion in early 2015 to $1.5 trillion today (2023). Every quarter the important story for Amazon is how are the cloud computing services doing.

Amazon AWS are now 70% of the company’s total EBIT. If AWS did not exist then Amazon has about 30% of the net income, a weaker growth story and is valued at about $300-400 billon.

Morgan Stanley said:
“We believe that Dojo can add up to $500 billion to Tesla’s enterprise value, expressed through a faster adoption rate in Mobility (robotaxi) and Network Services (SaaS),” they added.

How does Tesla FSD and Dojo sales make the net income to justify adding $500 billion of share value?

If it is super high margin and fast growth rate income then if it was $10 billion in one year, then it could justify a 50 PE on that part of the business. Amazon’s entire company is getting 100-150 PE for the AWS business.

Cumulative FSD sales in North America were 285000 as of the end of 2022. The sales will likely be about 200,000 in 2023. This is on total global car sales of 1.8 to 1.9 million in 2023.
I, Brian Wang, and other analysts have to parse this out from deferred revenue for global FSD or occasional statements from Tesla.

I am not going to differentiate between monthly subscription at $199/month and full sales at $12000 one time.

The take rate is about 20% in North America and very low in China, Asia and Europe. The reason for the difference is that the FSD has been trained better in North America and has not gotten full permission for sales in other regions. This is changing as Tesla will soon get full FSD authorization in China and elsewhere.

FSD and Dojo growth is as follows:

1. getting sales outside North America to be as good as in North America. Getting about 20% FSD sales globally.
2. Getting a very smooth and comfortable ride so that nervous passengers feel safe and confident in the system. This is like when does grandma feel safe driving as a passenger with the teenage grandson driving the car. Tesla will feel confident about FSD and over free monthly trials for new and old buyers. This could get sales up to 30% of the entire global fleet of Tesla cars which is a bit over double the annual new car sales.
3. Tesla proves it is many times safer than the average human Tesla driver. 50% of drivers are statistically worse drivers then the average. This is just math definitions. It means they have more accidents than the 50% who are better drivers. This means they have higher insurance costs. Tesla can bundle a proven super safe FSD with insurance. Driver with FSD and get lower insurance prices.

Getting after market sales from the global fleet reduces the reliance on high take rates on new cars. Tesla buyers who did not buy FSD on their new car can still reconsider years later and buy FSD later. If there were 50% of all new and used Tesla owners who get FSD in 2027 then Tesla could have about 15 million FSD sales in 2027. This would be $180 billion in net income.

$8 billion in FSD/Dojo and autopilot income or aftermarket sales would need Wall street rewarding this with a 62.5 PE to fully justify the Morgan Stanley $500 billion value estimate in 2024.

If Tesla has 5 million FSD sales in 2027 it would be 50% of 10 million new cars or 17% of all new and used cars.

This along with Dojo and autopilot revenue would be about $80 billion in 2027 net income. A 50X PE on this would be $4 trillion in additional share value.

Read More


Leave a Reply

Your email address will not be published. Required fields are marked *

Search this website