Piper Sandler analysts have issued a bullish note on Tesla (NASDAQ:TSLA), suggesting that the company may have finally cracked the code for full self-driving (FSD) technology.
The note emphasizes the significance of the latest FSD update, version 12.5, which has garnered positive user reviews on the X platform. Despite Tesla's history of over-promising on FSD, analysts believe this time might be different.
"Tesla May Have Solved the Self-Driving Puzzle. Don't Roll Your Eyes. Buy TSLA," the note is titled.
The analysts highlight the upcoming robo-taxi event on October 10th, viewing it not as a distraction from falling EV sales but as a pivotal moment for Tesla.
"We think investors should consider the possibility that Tesla's decision to host a robo-taxi event isn't a ploy to distract from falling EV sales," they state. The analysts believe the focus on FSD at this event could underscore its importance to Tesla's future.
Interestingly, the note points out that investors are eager to learn about non-FSD updates, particularly new product launches.
Tesla has hinted at unveiling a more affordable vehicle priced between $25,000 and $30,000. However, Piper Sandler analysts assert that the primary significance of such a vehicle would be as a platform for disseminating FSD software more widely.
According to the analysts, if investors hold TSLA at its current valuation, they must implicitly believe in the transformative potential of FSD. The firm's discounted cash flow (DCF) analysis suggests that without FSD revenue, Tesla's fair value would plummet to only $77 per share.
They project FSD take rates will surge sharply around 2030, ultimately achieving near-total adoption across Tesla's fleet. Additionally, they foresee FSD subscription prices increasing from the current $99 per month to over $500.
In conclusion, Piper Sandler recommends buying TSLA, emphasizing the pivotal role of FSD in the company's valuation and future growth prospects.