By Michael Elkins
Bernstein reiterated an Underperform rating and $150.00 price target on Tesla Inc (NASDAQ:TSLA) following an analysis of the company’s software value. Analysts sought to weigh into an ongoing debate about whether or not Tesla should be valued as a tech/software company or an auto manufacturer.
“Tesla has two main sources of automotive software revenue today. First is deferred revenue recognition from software updates, which amounted to $48M last quarter, or ~$5/month per car in the installed base,” the analysts wrote. “The second source of software revenues for Tesla today is Enhanced Autopilot/Full Self-Driving (FSD). Tesla recognizes a portion of revenues at time of sale, and defers the remaining FSD revenues into the future until features are completed and delivered to customers.”
Bernstein estimates that revenues last quarter from Autonomy overall may have been about ~$240 million. Accordingly, they believe that Tesla’s total software run rate revenues are about ~$290 million/qtr or 1.3% of total company revenues.
However, if Tesla can deliver complete FSD functionality before anyone else, the attach rates would increase dramatically. At 50% FSD attach rate, Tesla would recognize an average of $7,500 in FSD SW per car. Compared to ~$11,500 in operating profit per car today, this would dramatically alter the company's margin profile and would justify the current share price.
As for deferred revenue from software updates, deferred revenue relates to “Full Self Driving, internet connectivity, Supercharger, and over-the-air software updates.” Of these, software updates and Supercharger are the main sources of regular recurring revenue recognition. Tesla estimates the value of 8 years’ worth of software updates and defers that revenue over the life of the vehicle. About $5 per month per car in deferred revenues was recognized last quarter. Given that Tesla no longer offers free Supercharging for its cars, Bernstein expects recognized deferred revenue per car to decline from ~$5 per month to $3 per month over time.
The bull case on Tesla is that the company is able to deliver complete FSD functionality, increasing run rates. Bernstein is less optimistic on this scenario, believing that FSD pricing will largely be competed away over time, as nearly every other automotive technology and feature has been historical.
Shares of TSLA are down 0.14% in pre-market trading on Wednesday.