Piper Sandler believes Tesla Inc TSLA may have solved the autonomous vehicle puzzle. Despite CEO Elon Musk’s track record of overpromising, the analyst highlighted the latest version of Tesla’s Full Self-Driving as the real deal.
What Happened: Piper Sandler analyst Alexander Potter maintained Tesla with an Overweight rating on Sunday, noting that recent advancements in the EV maker’s Full Self-Driving technology appear to be underappreciated.
Based on recent reviews on the X social media platform, the Piper Sandler analyst believes the latest Full Self-Driving software from Tesla, version 12.5, is “revolutionary.”
“We think investors should consider the possibility that Tesla’s decision to host a robo-taxi event (October 10th) isn’t a ploy to distract from falling EV sales. Instead, it could catalyze a realization that FSD matters more than anything else,” Potter said in a note to clients this week.
Tesla shares are down nearly 7% year-to-date. Despite reporting a couple of weak quarters, Musk has downplayed the results and shifted investor attention toward his vision for the future around AI, Full Self-Driving and robotaxis.
Potter argues that Musk’s focus is in the right place. A majority of Piper Sandler’s price forecast is based on Full Self-Driving revenue assumptions. If you take Full Self-Driving out of the equation, Piper Sandler’s model implies fair value of just $77 per share.
“If investors own TSLA at this valuation, we think they must implicitly believe in FSD,” Potter said.
The Piper Sandler analyst expects Full Self-Driving take-rates to inflect “sharply upward,” beginning around 2030. The analyst further anticipates approximately 100% fleet-wide Full Self-Driving adoption in 20 years.
Further adding to the analyst’s Full Self-Driving thesis, Potter expects subscription prices to eventually rise to more than $500 per month, up from the current price of $99 per month.
“We also think Tesla will eventually sell EVs for ~$31k apiece, at 0% gross margin … but ultimately, just like cheap flip-phones, we don’t think anyone will buy non-FSD cars,” Potter said.
Potter expects Tesla’s Full Self-Driving to be a major driver of margin expansion, starting in the late 2020s, as he anticipates 90% gross margin on Full Self-Driving-related revenue. Piper Sandler has a price target of $300 on Tesla shares.
TSLA Price Action: Tesla shares were up 5.65% at $232.22 at the time of publication Monday, according to Benzinga Pro.
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Photo: Courtesy of Tesla.
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