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RBC Capital places higher value on Tesla’s Full Self-Driving technology than its core car business

Tesla’s progress in autonomy, specifically Full Self-Driving (FSD), has been valued higher by RBC Capital than the company’s car business. Analyst Tom Narayan from RBC Capital believes that Tesla’s one-month free FSD trial could serve as a catalyst in the second quarter of 2024. He stated that the trial could potentially bring more customers into showrooms and increase the FSD attachment rate, ultimately leading to higher deliveries.

Narayan also emphasized that autonomy is more significant than Tesla’s car business and highlighted that the FSD free trial might play a crucial role in the Tesla investment thesis in the long term, especially following the Q1 delivery miss. Despite his positive outlook on Tesla, Narayan acknowledged that current sentiments towards the company are negative due to softer-than-expected deliveries.

In the first quarter of 2024, Tesla experienced an 8.5% year-over-year decline in deliveries, totaling around 386,810 vehicles. The majority of deliveries comprised Tesla Model 3 and Model Y vehicles, amounting to 369,783 units, while other models like the Cybertruck, Model S, and Model X accounted for 17,027 deliveries.

RBC Capital identified various factors that might have influenced Tesla’s Q1 deliveries, including factory shutdowns at Giga Berlin due to an arson attack, shipping challenges caused by the Red Sea conflict, and pre-buy activities in Q4 2023 before the expiration of tax credits for the Model 3 under the Inflation Reduction Act (IRA). Additionally, the investment bank speculated on the impact of an EV demand slowdown in the United States on Tesla’s deliveries.

Looking ahead, RBC Capital forecasts that by 2035, Tesla will sell approximately 2.5 million vehicles annually in North America, 800,000 in Western Europe

By Samantha Jones

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