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

Autonomy Drives Tesla’s Investment Thesis: Analyst Predicts 2.5 Million Units Sold in North America by 2035

Tesla’s progress in autonomy, particularly Full Self-Driving (FSD), has been valued highly by RBC Capital over 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, potentially bringing more customers into showrooms and increasing the FSD attachment rate, leading to higher deliveries.

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

In Q1 2024, Tesla experienced an 8.5% year-over-year decline in deliveries, with around 386,810 vehicles delivered. The majority of deliveries comprised Model 3 and Model Y vehicles (369,783 units), while other models like Cybertruck, Model S, and Model X accounted for 17,027 deliveries. RBC Capital identified factory shutdowns at Giga Berlin due to an arson attack, shipping challenges caused by the Red Sea conflict, pre-buy activities before tax credits expired for Model 3 under IRA as some of the factors that influenced Tesla’s Q1 deliveries. Additionally, EV demand slowdown in US was speculated upon as another impact factor on Tesla’s sales.

Moving forward, RBC Capital forecasts that by 2035 Tesla will sell approximately 2.5 million vehicles annually in North America, 800k units in Western Europe and 1.7 million units in China respectively. The investment bank also predicts that Model 3 and Model Y vehicles will contribute around 2.3 million units to annual sales figure whereas Model X will account for approximately half a million units sold annually once matured while model S will have no significant contribution if not included with other models like Cybertruck etc .

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