Bank of America predicts that Tesla's approval of its full self-driving technology in China could significantly boost the company's earnings over the next decade. The electric vehicle manufacturer stands to potentially earn more than $2 billion by 2030 if its software sees widespread adoption among Tesla drivers in China, according to the bank's analysis.
Tesla's stock surged by as much as 16.6% following the unexpected visit of CEO Elon Musk to China over the weekend. Reports indicated that Beijing is poised to approve Tesla's self-driving technology. Additionally, a partnership was unveiled with Chinese company Baidu, which will provide navigation features for Tesla's software. Upon the technology's release, Tesla may offer Chinese users of its Full Self-Driving (FSD) system a monthly fee of approximately $99, mirroring its pricing structure in the United States.
In the case that just a quarter of the 1.6 million Tesla drivers subscribe, this would amount to just half a billion in annual revenue, Bank of America said. "But with a gross margin likely to exceed 70% the earnings benefit could be ~$350mm", the note said. "This number could increase meaningfully over time and, based on IHS projections for TSLA's China auto sales, could be $2.3bn in annual earnings by 2030 under the same assumptions".
It's also conceivable that Tesla's Full Self-Driving (FSD) technology might not generate any earnings if the company opts to provide it to consumers at no cost due to market pressures. With increasing competition in the region, Tesla may find it necessary to take this approach. However, this doesn't imply that Tesla won't gain from it, as widespread adoption of FSD could significantly hasten the software's neural network training, according to the bank's analysis. Regardless, FSD is expected to stimulate demand for Tesla vehicles in China, potentially turning around the waning interest the company has experienced in that market.
"Competition is increasing from domestic manufacturers and FSD will help TSLA catch up to, and potentially exceed, other EV offerings on the market. Combined with recent price cuts in China (by 14,000 yuan, or ~$1,930), this could spur volume growth", Bank of America said, though it noted that Chinese EV sales have slowed in the first quarter.
In addition to the potential FSD deal in China, Tesla's stock stands to gain from several other factors, including the anticipated August Robotaxi event, the launch of a new product in 2025, and the potential licensing of FSD technology. Bank of America is holding steady with a $220 price target for Tesla, indicating nearly a 20% increase from its current valuation.