Elon Musk's Tesla's AI Licensing/Services Businesses Has Upside Depending On How Well It Executes: Goldman Sachs

Goldman Sachs analyst Mark Delaney reiterated a Neutral rating on Tesla Inc TSLA with a price target of $235.

Delaney updated his framing of the medium-term addressable market for FSD (Full Self Driving, the name of Tesla's automated driving product), compared FSD and D1/Dojo to other ADAS/AV and AI training products, and discussed implications for valuation.

The analyst notes that Tesla is among the leaders in AI technology and expects that this will help it expand businesses like FSD, particularly for Tesla's fleet of vehicles. 

Tesla's AI licensing/services businesses, given the high degree of competition (Nvidia in particular in AI training and multiple OEMs and tech companies), could be a source of upside depending on how well Tesla executes. 

His price target gives Tesla future credit for growing in new high-margin areas, albeit primarily for its fleet. 

The analyst will look for product traction vis-a-vis other alternatives before potentially ascribing more valuation for FSD licensing and providing Dojo as a service. 

To the extent Tesla can capitalize on those opportunities, though, the analyst notes the market opportunity would be significant (an upside case FSD could be $50 billion - $100 billion a year of revenue from Tesla's fleet by 2030, up from $1 billion - $3 billion per year presently, and the overall automotive software & services industry TAM in the long-term could be >$1 trillion annually to the extent the global installed base of more than 1 billion vehicles on the road transitions to being connected and software-defined over the next 10-20 years). 

Delaney projects FY23 revenue and EPS of $96.8 billion (consensus $97.2 billion) and $2.64 (consensus $3.16).

Price Action: TSLA shares traded higher by 5.60% at $236.23 on the last check Tuesday.