Tesla's Stock Rises After Offering Free FSD Trial to Boost Revenue

Key Takeaway

• Tesla's stock rises 0.8% premarket after a nearly 3% increase, fueled by a free one-month FSD trial to boost recurring revenue.
• Citi analyst revises Tesla's Q1 delivery estimate to 430,000 units and price target to $196, yet stock shows resilience.
• Amid regulatory scrutiny and competition, Tesla employs new sales tactics with FSD trials; Ark Invest boosts investor sentiment by purchasing more shares.

Tesla's Strategic Moves

Tesla's shares experienced a slight uptick of 0.8% in the premarket, following a nearly 3% increase on Tuesday. This movement came in the wake of CEO Elon Musk's announcement via Twitter that Tesla would offer drivers a free one-month trial of its Full Self Driving (FSD) technology, aiming to boost higher-margin recurring revenue. FSD, which costs most users $199 a month, is believed to already be a billion-dollar-a-year business, although exact subscriber numbers remain undisclosed.

Analyst Adjustments and Market Reaction

Citi analyst Itay Michaeli revised his first-quarter Tesla delivery estimate down to approximately 430,000 units from an initial 473,000 and adjusted the stock's price target to $196 from $224, maintaining a Hold rating. Despite these adjustments, Tesla's stock showed resilience in early Wednesday trading. This reaction suggests that investors have become accustomed to revised Tesla estimates, with current first-quarter delivery expectations aligning with Michaeli's revised figures. Over the past three months, analysts have also adjusted their 2024 earnings per share projections for Tesla from about $3.80 to $2.90, with the average analyst price target decreasing to just over $201.

Competitive Landscape and Peer Performance

Tesla's stock performance and investor sentiment have been influenced by increased competition and a slowdown in EV demand growth. Year-to-date, Tesla's stock has seen a decline of approximately 29%. In contrast, shares of Tesla's peers showed mixed performance, with BYD's American depositary receipts dropping 0.2%, NIO's shares decreasing by about 1%, and Ford Motor, General Motors, Lucid, and Rivian experiencing gains in early trading.

Regulatory Challenges and Sales Tactics

Tesla's recent stock rally can be attributed to a new sales tactic aimed at appeasing regulators investigating the company's driver-assistance system. Elon Musk has directed employees to offer customers a "short test ride" to familiarize them with FSD, alongside a free one-month trial of the technology. This approach is seen as a strategy to sell more FSD software subscriptions, considered a high-margin revenue stream, and to address regulatory concerns from ongoing NHTSA investigations into Tesla's technology. High-profile investor Cathie Wood's Ark Invest funds also contributed to the positive sentiment by purchasing more Tesla shares.

Street Views

• Itay Michaeli, Citi (Neutral on Tesla):

  "The cut doesn’t seem to be impacting the stock early Wednesday. At this point, investors have grown used to falling Tesla estimates."

Management Quotes

• Elon Musk, CEO of Tesla:

  "Tesla would give Tesla drivers a free one-month trial of his company’s highest level driver-assistance technology that Tesla calls Full Self Driving, or FSD."