Tesla's Full Self-Driving Business Is Growing Fast. But There's a Catch for Investors
Could this be the key to Tesla bouncing back from its recent troubles?
Tesla's Full Self-Driving (FSD) business is experiencing rapid growth, but there are risks that could impact potential investors. Despite a strong Q3 performance, the company's shares fell after earnings due to mixed financial results. Tesla delivered 486,532 vehicles, a 2% year-over-year decline, with revenue flat at $28 billion.
However, active FSD subscriptions surged 67% year-over-year to 1.74 million. The FSD subscription generates around $1 billion in annual run rate, which could boost profits despite its small portion of total revenue. The company's FSD attach rate in North America reached over 75% in Q3, up 20 percentage points from the previous quarter.
More FSD subscriptions could improve software development and Tesla's robotaxi service. Nevertheless, investors should be cautious. Tesla's FSD attach rate depends on customer retention, and the company faces regulatory challenges. Moreover, Tesla's valuation appears to overestimate its potential success. With a forward earnings ratio of 149.3x, the stock may be overvalued, requiring significant growth to justify the current price.
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