Tesla's Future Hinges On China FSD: Goldman Sachs

Goldman Sachs analyst Mark Delaney maintained a Neutral rating on Tesla Inc TSLA with a price forecast of $235 on Monday.

Delaney commented that Tesla’s ability to leverage its Full Self Driving (FSD) software in China would be important for the stock going forward, given the size of the China vehicle market, the increasingly competitive landscape for ADAS software and robotaxi offerings in the region, and the role that future profits from AI-enabled products like FSD have for Tesla’s valuation.  

China is the biggest car market in the world.

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Additionally, the analyst noted it had become the biggest market for Tesla’s new vehicle sales over the last year. Delaney attributed this in part to the market size in China, where BEV penetration rates are higher.

However, the analyst also cited that changes in market share have played a role. While Tesla’s trailing twelve-month share in the U.S. BEV market has fallen to about 45% as of the first quarter, and its share in Europe has fallen to the low double-digit range, Tesla’s BEV share in China has been more stable in the high single-digit range.

On February 25, media outlets reported that Tesla had pushed an update to some users who had previously purchased Tesla’s FSD software with several FSD-like features, including automatic lane change, traffic light detection, and turning capabilities.

Tesla commented on its first-quarter 2025 earnings call that it could launch supervised FSD in China with minimal local-specific data for the Chinese market, as the company could leverage the more generalized software it had already developed.

According to media reports, Tesla’s FSD software has historically worked better in the U.S., as Tesla has had more data and time to refine its products domestically. Tesla also spoke about the benefits of local training and parameters on its first-quarter 2025 call.

FSD in China has performed relatively well, especially given the limits to Tesla’s data collection in China. However, some reviews cite a lack of understanding of local traffic rules and the sporadic use of wrong lanes, which Delaney noted could be due to the more limited data for the Chinese market.

Tesla’s FSD offering is one of several ADAS options for consumers in China, with many local competitors offering this as a standard feature even on mainstream vehicles. The level of technology and cost improvement that Tesla can achieve with FSD, both absolute and relative to competitors, will be key for its longer-term economics related to autonomy (both globally and in China).

The analyst noted that there have also been media reports that China is looking to regulate better how companies test, deploy, and market smart driving features.

Delaney remarked that Tesla hopes to offer robotaxi services widely over time, but it plans to do this first in Texas, starting in June 2025. For the U.S. market, the analyst noted that the cost of Tesla’s vehicles could be an advantage over other robotaxi offerings. Specifically, its cost of goods sold per vehicle globally was about $35.5K in the first quarter of 2025, and per Tesla, its more recent Hardware 4 equipped vehicles have all of the hardware needed for L4.

If Tesla eventually starts a robotaxi operation in China, it will face a different competitive landscape with several autonomous vehicles having attractive costs. Delaney stated that technology development, scale/cost, and regulatory approvals will be key factors in monitoring and assessing Tesla’s success with robotaxis in the region.  

Delaney projected fiscal 2025 revenue of $93.17 billion and EPS of $1.20.

Price Action: TSLA stock closed lower by 1.75% to $275.35 on Tuesday.

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