There's no point avoiding the elephant in the room: Tesla's (TSLA +0.69%) automotive revenue and its EV deliveries have declined this year. Whether you are a robotaxi bull or not, the revenue and delivery declines are not good news for the company.
However, that could significantly change in the future if the company's development plans progress as expected. Here's the how and why.
How the market is pricing Tesla stock
Tesla investors already know that the stock isn't being priced in solely as an EV automaker. After all, who would buy an auto stock trading on 250 times its estimated 2025 earnings?
It's more likely that the market is pricing in the potential for long-term recurring revenue from profit-sharing from Tesla's robotaxi business. That applies whether it's Tesla's own dedicated Cybercab or Tesla's vehicles transformed into robotaxis using publicly available, unsupervised full self-driving (FSD) technology.
NASDAQ: TSLA
Key Data Points
The one problem with this idea is that Tesla doesn't have fully autonomous robotaxis approved, and it also doesn't have publicly available unsupervised FSD available either.
To be clear, Tesla's valuation doesn't stand up to scrutiny without unsupervised FSD and robotaxis approved, and that makes it a high-risk/high-reward stock proposition. However, the point is here is that getting unsupervised FSD isn't just about ensuring the generation of recurring revenue from robotaxis. It's also an integral part of growing the Tesla EV business in itself.
Four reasons why unsupervised full self-driving will boost demand for Tesla EVs
First, having unsupervised FSD publicly available will add value to existing Tesla cars, not least because it will make the vehicle able to be converted for use as a robotaxi. There is plenty of growth potential here. For example, CEO Elon Musk argued on the last earnings call when discussing Tesla's existing supervised FSD offering, "The vast majority of people don't know it exists. It's still like half of Tesla, Inc. owners who could use it haven't tried it even once."
Image source: Getty Images.
That's an indication that the majority of people buying a Tesla are not buying it for FSD (or at least, supervised FSD). However, if and when unsupervised FSD (which would not require a driver at the wheel) is approved, demand and the value buyers place on the cars should improve.
Second, it would likely increase the take-up rate of FSD, whether Tesla owners want to transform their cars into robotaxis or not. CFO Vaibhav Taneja claimed FSD adoption had markedly improved with the release of a newer version in North America, but "honestly, we've just started the story around explaining the benefits of FSD."
Third, demand for Tesla cars would increase because new owners could use them as robotaxis. This applies whether buyers purchase a Tesla car for immediate use or plan to transform it later.
Fourth, suppose approval of unsupervised FSD boosts Tesla sales volumes, as suggested above. In that case, the company can continue to build the kind of scale and supply chain necessary to lower the cost per vehicle aggressively. That's the key to reducing the sales price of a Tesla car and making it a more affordable option for car owners. A lower up-front cost will make it easier for drivers to benefit from the lower fueling and maintenance costs associated with EVs, as compared to internal combustion engine cars.
Image source: Getty Images.
What it means for Tesla investors
Robotaxis are critical to the investment case for the stock in themselves. Still, investors shouldn't lose sight of the fact that the unsupervised FSD (which will run robotaxis but may not be approved, if at all) can also significantly boost Tesla's EV sales, and its already dominant position in the EV industry.
Musk was asked for a timeline for when unsupervised FSD might be available for personal use, and replied, "We are getting there. I think it will be available for unsupervised personal use by the end of this year in certain geographies."
While that prediction appears likely to prove overly optimistic, and there are no guarantees it will ever be approved, a significant growth opportunity exists if it does receive approval, and risk-taking investors need to factor that into their risk-reward calculations.
