Tesla (TSLA 0.66%) already stands as the clear leader in the electric vehicle (EV) market, and the company is taking steps to ensure that it has a front position in autonomous-driving technologies. On Monday, Tesla Chief Executive Officer Elon Musk published a post on Twitter, a platform he owns following a recent acquisition, stating that his electric vehicle company would be offering a free trial of its full-self-driving (FSD) service powered by artificial intelligence (AI) for all of its automobiles in North America.
It's not clear exactly when the company will debut its free trial for FSD services, but the move is likely to make waves when it hits. Should investors buy the stock before the debut of the company's planned autonomous-driving software trial?
Image source: Tesla.
Tesla wants to make FSD a key business component
Tesla already offers self-driving services as an add-on for vehicle owners who request the service, and it's continuing to make improvements to the software's capabilities. Last fall, the EV leader increased the price of access to its FSD software from $12,000 to $15,000.
Tesla also offers access to its FSD capabilities at a base price of $199 a month, with the option to add advanced functionality for an additional $99 a month. Now, it looks like the company will be rolling out a free trial in North America to attract new customers and pave the way for improving the platform's capabilities.
Once FSD is super smooth (not just safe), we will roll out a free month trial for all cars in North America.
-- Elon Musk (@elonmusk) May 8, 2023
Then extend to rest of world after we ensure it works well on local roads and regulators approve it in that country.
Regulation of self-driving technologies is less stringent in the U.S. and Canada than in other markets, and the planned free trial period for users in those regions should give the company opportunities to gather data that will improve performance for the software.
Why self-driving trials could be huge for Tesla
Tesla already commands margins that are the envy of the broader automotive industry, and the company's ability to sell add-on services through unlocks and software updates opens the door for additional profit-generating avenues. Beyond selling extra services to customers, the company may also have the opportunity to monetize its AI-powered FSD software through taxi and ride-hailing services and commercial deliveries.
Monetizing autonomous-driving services remains in the very early stages, and Tesla might score huge wins if it can maintain a leadership position in the category. In addition to creating a potential selling opportunity for existing Tesla owners and those who might be interested in buying the company's cars, the FSD free trial also presents an important way to gather data.
If algorithms are the engines that drive AI-powered services, data is the fuel. By rolling out a free FSD offering for its vehicle owners, Tesla will be able to record valuable data that should allow it to improve the core service and bolster the value of the software as a paid offering.
The valuation question
Tesla is currently valued at roughly $530 billion. By market cap, the EV leader is already the world's largest automaker, and its valuation is higher than the market caps of the next four largest auto companies put together.
BYDDY Market Cap data by YCharts
For a bit of extra perspective, Tesla's market cap is also more than five times higher than the combined market capitalization of Ford and General Motors. Tesla is posting superior margins and earnings growth compared to most players in the automotive industry but the company is also valued at a significant premium.
Is Tesla stock a buy right now?
Autonomous driving software presents a potentially enormous growth opportunity for Tesla, but the company isn't the only one with strong foundations in the service category. General Motors and Alphabet's Waymo division also both have forefront positions in the market, and it's hard to predict how the race for leadership in self-driving vehicles will shake out. There will almost certainly be more than one winner in the category, but it looks particularly important for Elon Musk's company.
Tesla's recent price cuts have been making waves in the EV market and broader automotive industry, and the initiative also highlights the company's next-generation business model. While the EV leader has been reducing prices for its cars, the initiative opens the door for the company to sell added, software-delivered services.
Musk's recent comments about the free full-self-driving trial suggest he is confident in his company's autonomous vehicle technologies and eager to gather data that can take the service to the next level. But Tesla remains a high-risk, high-reward play, and investors should weigh their personal risk tolerance and portfolio goals before going all-in on the stock.
