Tesla's Stock Could Rise By Up To $24 If EV Giant's China FSD Rollout Succeeds, Says Fund Manager: 'Much Depends On Whether...'

Tesla Inc.’s stock TSLA saw a boost this week on news of a potential full self-driving software rollout in China. Future Fund‘s Gary Black weighed in Tuesday, highlighting the potential benefits for Tesla if the technology reaches this key market.

China FSD: A Big Boost, But Questions Remain

While Black acknowledges the difficulty of quantifying FSD’s value for Tesla, he emphasizes two key factors:

• Sales Model: Will Tesla sell FSD only on its own vehicles, or will it secure licensing deals with Chinese startups?
• Adoption Rate: How many Tesla owners in China will opt for FSD?

“It's difficult to quantify what FSD approval in China is worth to $TSLA valuation. Much depends on whether TSLA sells FSD on just its own vehicles or secures licensing deals with other China EV makers. Much also depends on China's FSD take rate,” he posted on X.

Black highlighted the significant electric vehicle (BEV) market in China, which sells 22 million vehicles annually, with 24% (roughly 5.2 million) being BEVs. He points out Tesla’s strong presence in China, with 610,000 BEVs sold in 2023 and 1.7 million units cumulatively since 2019.

It's difficult to quantify what FSD approval in China is worth to $TSLA valuation. Much depends on whether TSLA sells FSD on just its own vehicles or secures licensing deals with other China EV makers. Much also depends on China's FSD take rate.

China sells 22M autos per year…

— Gary Black (@garyblack00) April 30, 2024

Potential EPS Boost & Valuation Impact

Black estimates that if just 10% of Tesla owners in China pay $1,000 annually for FSD, it could add 4 cents per share (EPS) to Tesla’s earnings. This EPS accretion could be significantly higher (16 cents per share) if Tesla licenses FSD to other BEV manufacturers in China.

“At a TSLA 2025 P/E of 50x that equates to $8/share in incremental valuation,” Black said. 

If the China FSD take rate is 30%, incremental earnings per share could be as high as 48 cents per share, and incremental valuation could be $24 per share, he said. 

Competition & Regulatory Hurdles

However, Black acknowledges the presence of competitors like Baidu, whose Apollo Go robotaxis are already approved for operation in six major Chinese cities, with plans for expansion to 65 by the end of 2025. He questions whether Baidu would switch to Tesla FSD given their existing solution.

See Also: Everything You Need to Know About Tesla Stock

Analyst Opinions Diverge

Analyst opinions on the FSD rollout in China vary. BofA Securities’ John Murphy estimates incremental annual revenue of half a billion dollars and earnings of $350 million for Tesla if 25% of Tesla owners adopt FSD. Murphy projects even higher earnings ($2.3 billion) by 2030 based on the same adoption rate and projected auto sales growth in China.

However, bearish analyst Gordon Johnson downplays the news, suggesting the announcement only allows Tesla vehicles into government compounds. He doubts China would approve FSD trained on U.S. data.

Price Action: Tesla ended Tuesday’s session down 5.55% at $183.28, according to Benzinga Pro data.

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Photo by Koshiro K on Shutterstock.