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Is there a reason to own Tesla stock near term given the headwinds? RBC answers

Published 2024-07-25, 07:06 a/m
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Shares in Tesla (NASDAQ:TSLA) fell sharply on Wednesday after the automaker reported Q2 earnings and auto margins that missed analyst expectations.

The stock plunged more than 12% on the day, erasing nearly all of its July gains.

RBC (TSX:RY) Capital Markets analysts acknowledged the near-term setup for Tesla stock could be challenging and remain that way for more than 5 quarters ahead. However, analysts added they “see a critical lever that Tesla has to pull that could change the narrative on the stock immediately.

“And this would be cutting the price of FSD,” they highlighted.

RBC notes that Tesla's Full Self-Driving (FSD) product, now priced at $99 per month, has seen a significant increase in usage.

Following a free trial in March and a price reduction from $200 to $99 per month, cumulative miles driven surged by 60% in Q2 compared to Q1 of this year. A year ago, 400,000 Tesla customers in North America were using the FSD beta, and that number has risen substantially over the past three months.

"All that said, while FSD take rates have expanded dramatically in recent months, we estimate FSD penetration of Tesla's fleet is in the single digits," the analysts said.

Still, other OEMs offer Level 2+ pricing much lower than Tesla's $99 per month rate, RBC pointed out.

Citing its recent talks with BMW (ETR:BMWG), the investment bank learned that the German auto giant’s 5-Series in California has a take rate exceeding 30% for a product priced at $2,650.

Assuming a $99 per month price for Tesla's FSD, this equates to a $7,000 cost over six years. Both General Motors Company's (NYSE:GM) Supercruise and Ford's (NYSE:F) Bluecruise are similarly priced to BMW's offering. The analysts believe that if Tesla reduced its FSD price to match its competitors, it could significantly boost take rates.

"This could translate to immediately improved margins and more importantly, highlight the autonomy narrative and multiple on Tesla shares instantly, instead of waiting for robotaxis," they said. "It could also highlight the potential for Tesla to license FSD to other OEMs."

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