20％！ Tesla FSD has increased its price again, and it has soared 5 times in 7 years

Following a price increase of $10,000 in November 2020, Tesla's Autopilot system will raise prices again this year.

On Friday, Musk announced on Twitter that the price of Full Self-Driving (FSD), a fully autonomous driving system for customers in the U.S. region, will be raised to $12,000 from Jan. 17.

FSD is an advanced driver assistance suite on Tesla vehicles that includes autonomous driving and some other more sophisticated features such as automatic lane change, stop light recognition, and "smart calling": car owners can call their own cars from a parking space to pick them up; owners can also remotely control their Tesla cars from their mobile phones.

The driver assistance standard kit on Tesla's new vehicles (Model S, X, Y, and 3) is called "Autopilot, and features include, but are not limited to, automatic emergency braking, forward collision warning, lane keeping, and adaptive cruise control.

Currently, Tesla owners can subscribe to the FSD feature on a monthly basis for $199/month. Musk also said in a tweet on Friday that the monthly subscription price will rise when the FSD is widely available.

Musk has previously said in media interviews that Tesla will solve the problem of autopilot L4 in 2022. At L4 level, the vehicle will automatically complete all driving controls, only in special roads and environments where the driver is required to maintain monitoring and takeover.

01

Autonomous driving is not "automatic" enough

However, despite the name "autopilot" in FSD, Tesla currently does not allow cars to do self-driving without driver intervention.

Currently, the California Motor Vehicle Administration and the U.S. National Highway Traffic Safety Administration are investigating different aspects of Tesla's FSD research and development and technology. Tesla had previously told regulators that its technology was "only an L2-level system."

In the grading standard for autonomous driving, L2 means "to improve safety or provide driver assistance, but it is impossible to drive or operate a vehicle without active physical control or monitoring by humans."

In addition, FSD also has an advanced version of "FSD Beta", which includes more advanced features, and currently only drivers who have purchased or subscribed to FSD and obtained high scores in Tesla's safety test can qualify for the trial.

In the FSD Beta, drivers can test Tesla's unfinished technology, such as "Autosteer on City Streets," a feature that Tesla says will eventually allow vehicles to fully autonomously drive themselves in residential areas and city surface streets, avoiding all obstacles.

In Friday's tweet, Musk also said that the beta update (10.9) will be released next week at the same time as the price increase, and another larger update "may be released next month."

02

Functional upgrades + rising costs, Tesla frequent price increases

In recent years, with the continuous upgrading of technology and cost pressures, Tesla's software and hardware have also frequently increased in price.

According to Western Securities statistics, in 2015, Tesla launched the FSD V7.0 version, which can realize automatic steering, automatic emergency steering + side impact warning, automatic lane change, automatic parking space and other functions, the price is 2500 US dollars / set.

In 2018, the FSD V9.0 version was launched, which can realize autonomous driving in high-speed/intercity road scenarios, and the price is raised to $5,000/set.

In 2019, the third generation of FSD was released, which can realize intelligent driving functions including automatic parking, automatic auxiliary lane change, intelligent summoning, etc., with a one-time purchase price of 8,000 US dollars / set, and a domestic price of 64,000 yuan / set.

In 2020, Tesla launched the FSD Beta version, equipped with full self-driving testing of urban roads, and the price doubled to $10,000 / set.

Since the epidemic, due to the rising pressure on the supply chain and raw material costs across the industry, Tesla has raised the price of its automotive products in 2021.

According to Tesla China's official website, at the end of 2021, the price of the Model 3 rear-wheel drive version was adjusted to 265,652 yuan, an increase of 10,000 yuan from the previous price; the price of the Model Y rear-wheel drive version was adjusted to 301,840 yuan, an increase of 21,088 yuan from the previous price.

On November 5, 2021, Tesla raised the U.S. price of the Model 3 and Model Y series by $1,000.

03

Hardware embedding + software charging, breaking through the boundaries of traditional car companies

It's unclear to what extent the price increase will boost Tesla's performance, but what is certain is that Tesla is no longer a simple car manufacturing company.

In a previous research report, Morgan Stanley pointed out that a major shift in Tesla's business model is coming. Tesla is not only a hardware company, but also a software company; it is a car company and a technology company. Web services are its most promising business and the primary driver of its stock's further rise.

Tesla's main source of revenue will no longer be the purchase transaction of the car (sales × price), but the software and services revenue (platform users × ARPU) after-sales people use the product for several years. When people get into a Tesla, they enter a unique ecosystem built by Tesla and continue to pay for the various services they enjoy.

Tesla itself has a relatively large and relatively high user base, and the reuse rate of its services by users is very high. These services are able to provide Tesla with a steady stream of high profits and cash flow, and further improve the user experience and platform stickiness. At the same time, the high stickiness and high willingness to pay customer base also means that Tesla is expected to earn considerable revenue through advertising cooperation.

Western Securities analyst Luo Yamei pointed out in the research report that with the rise of Tesla's sales, the business model of "hardware embedding + software charging" will contribute an important force to Tesla's revenue. According to the financial report, in the third quarter of 2021, Tesla's services revenue, including FSD, was $894 million, accounting for 6.5% of the quarterly revenue of $13.757 billion.

Tesla's software revenue consists of 3 businesses, namely the Internet of Vehicles function, the OTA paid upgrade and the FSD autonomous driving function:

As the core product of Tesla's software services, unlike Apple,which makes a profit through a series of services, the advantage of Tesla FSD is that due to completely independent development, the company can get 100% of the revenue without having to share with others, which will bring Tesla a very large profit.

Connected Cars and OTA paid upgrades are tesla's new software-based services in 19 years, with a low unit price, while the self-driving function charge began in 2015 and has a high unit price. Troyteslike data shows that in 2020, FSD has an option rate of more than 60% in Model S/X models and more than 40% in Model Y models.

The continuous improvement of FSD selection rate and price has injected impetus into the improvement of gross profit margin of Tesla's automobile business. Western Securities expects that the overall selection rate of Tesla FSD is expected to increase to 50% in 2025, contributing about 14% of Tesla's revenue.

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