Tesla is about to increase the price of its “Full Self-Driving” package again as Elon Musk now evaluates the value of the completed version of the package at over $100,000.
Over the years, much has been said about how Tesla is approaching self-driving technology differently from the rest of the auto industry.
The automaker refuses to use lidar sensors and instead plans to rely mainly on computer vision technology using cameras.
It also started installing the needed hardware in all its vehicles years ago when it believed that self-driving had become mostly a software problem.
But most notably, Tesla started to pre-sell a “Full Self-Driving” package in its vehicles years before it planned on making the technology available through the software.
That’s a somewhat bold move that has been criticized for different reasons.
Some say that it’s confusing customers in thinking that Tesla vehicles are currently capable of self-driving, which is not the case.
Others have also criticized Tesla for often changing the price of the package up and down, even though they haven’t delivered the features promised in the package.
Over the last year, CEO Elon Musk has made Tesla’s pricing strategy clearer when it comes to the “Full Self-Driving” package: Tesla is going to increase the price of the package as it introduces new features.
At this moment, Tesla sells the FSD package for $7,000, but Musk has been signaling plans to increase the price on July 1, 2020.
Today, Musk confirmed that Tesla plans to increase the price of the package by $1,000:
Tesla Full Self-Driving option cost rises by ~$1000 worldwide on July 1st. Order a Tesla online in less than 2 minutes at https://t.co/qJm9uPBCX5
— Elon Musk (@elonmusk) May 18, 2020
It will bring the cost of the package to $8,000. New buyers are going to be able to order the package for that price, and existing owners can update via an over-the-air software update.
Musk also added that he believes the value of Tesla’s “Full Self-Driving” package will exceed $100,000 once the automaker achieves actual self-driving capability:
The FSD price will continue to rise as the software gets closer to full self-driving capability with regulatory approval. It that point, the value of FSD is probably somewhere in excess of $100,000.
This plays into Musk’s claim that Tesla vehicles have become appreciating assets.
Last year, Musk claimed that Tesla vehicles are now “appreciating assets” due to their self-driving capability.
He aims for Tesla vehicles to become revenue-generating assets for their owners on Tesla’s future self-driving ride-sharing service, but if the price doesn’t increase, the value would still depreciate since new buyers could still buy the vehicles for the MSRP.
But Tesla’s CEO linked the claim to the automaker’s plan to “substantially” increase the price of the Full Self-Driving option over time:
— Elon Musk (@elonmusk) April 13, 2019
Some have speculated that if Tesla achieves full self-driving capability in its vehicles, the value of the self-driving option might make its vehicles too valuable to sell for private use.
I think the package is expensive right now for what it delivers, but it’s certainly extremely cheap if Tesla actually manages to deliver full self-driving, which remains to be seen.
If you are confident in Tesla’s ability to deliver on the FSD package, then yes, it might be smart to buy now. If not, you should wait.
On the business front, this move is really interesting.
This is going to help Tesla’s Q2, which is expected to be a mess due to the impact of the global pandemic.
Currently, we estimate that there are hundreds of thousands of Tesla owners who haven’t purchase FSD. They might be incentivized to buy now before the price increases again.
While Tesla cannot recognize the full price of the package as revenue since it hasn’t delivered all the features promised under the package, it still recognizes about half of the $7,000.
Therefore, if just 30,000 Tesla owners decide to buy the package before the price increases, it would give Tesla over $100 million in revenue this quarter.
On top of it, Tesla might start recognizing more revenue from FSD after it delivered its new “Traffic Light and Stop Sign Control” feature.
As of last quarter, Tesla had about $600 million in unrecognized revenue due to the Full Self-Driving package.
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