Tesla is making a subtle change that could have big implications

By William Gavin

CEO Elon Musk says Tesla will only sell its FSD as a $99 monthly subscription, removing an ability to buy the service outright. That move has financial and strategic benefits.

Tesla CEO Elon Musk has said his company will need about 10 billion miles of training data to achieve "safe unsupervised self-driving."

Tesla CEO Elon Musk has a new plan that could bring in more cash and give his company an edge in the self-driving race.

He announced overnight that Tesla (TSLA) will stop selling its Full-Self Driving technology outright as of Feb. 14. "FSD will only be available as a monthly subscription thereafter," he wrote on X, the social-media platform he owns.

Doubling down on subscriptions has been a popular strategy in the technology world, with Adobe (ADBE) the poster child for this sort of transformation. The company once charged customers a one-time price for access to software like Photoshop but turbocharged its business by deciding about a decade ago to instead require monthly subscription payments.

Over the next month, Tesla could see a rush of one-time FSD purchases from customers wishing to get ahead of February's change to subscription-only. After that, the company presumably is looking to lock in recurring revenue further down the road. The emphasis on subscriptions would likely also force any customers who do want to use Tesla's software to grin and bear any future price hikes.

In the past, Musk has said that the price for the advanced driver-assistance system will rise as the software becomes more advanced. For now, that hasn't strictly been true.

The software sold for as low as $5,000 in 2019 and reached a peak of $15,000 in late 2022. By April 2024, Tesla had cut the price back down to $8,000. It first introduced a subscription model in the U.S. in mid-2021 for $199 per month, although that was later lowered to $99 per month, or about $1,200 a year.

Read more: What's ahead for Tesla as it doubles down on AI

That's a steal, according to Musk's view of FSD's value. In 2020, he said the system is worth "somewhere in excess of $100,000." A year earlier, he claimed that Tesla's cars would - unlike almost all other vehicles - be appreciating assets because of FSD. "It's really the difference between Tesla being worth a lot of money or worth basically zero," Musk said in 2022.

But customers haven't fully seen eye-to-eye with the Tesla CEO.

"On the FSD adoption front, we've continued to see decent progress," Tesla CFO Vaibhav Taneja said on an earnings call last October. But he acknowledged that the total paid FSD customer base was "still small," representing about 12% of Tesla's fleet at the time.

That's a problem for Tesla, which needs to collect massive amounts of data from customers in order to train and refine its software. As of Wednesday, the company said it has recorded more than 7.2 billion miles driven with FSD enabled, including 2.6 billion miles on city roads.

Musk last week said Tesla will need roughly 10 billion miles of training data to achieve "safe unsupervised self-driving." The current version of FSD requires that drivers remain ready to intervene if necessary and keep their eyes on the road.

This data is a crucial component of Tesla's effort to develop a ride-hailing network using autonomous vehicles, which analysts say is a big part of the company's future. Musk had promised to remove safety drivers from Tesla's current service in Austin, Texas, by the end of 2025, a deadline that has come and gone.

See also: Less traffic, more lounge time, cheaper homes? How robotaxis promise a whole new world.

Tesla's primary advantage in pursuing autonomous driving is its ability to collect data and quickly scale. It needs to keep refining and upgrading FSD to fend off robotaxi rivals like Alphabet-backed (GOOGL) Waymo, as well as automobile makers selling vehicles with similar tech, including Rivian Automotive (RIVN).

Tesla's pivot to a subscription model may also help Musk achieve one of the targets required for him to unlock the complete value of his $1 trillion compensation package. The 10-year plan was approved by investors last November and requires Tesla to reach 10 million active FSD subscriptions.

Read: Elon Musk brushes off Nvidia's competitive threat

Outside of the U.S. and Puerto Rico, Tesla only offers FSD in Canada, Mexico, Australia and New Zealand. The software has also been partially approved in China, although Tesla aims to receive full approval in the current quarter. Tesla is lobbying for approval in Europe.

-William Gavin

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