Tesla May Be ‘Losing Faith’ in How Soon Self-Driving Will Arrive

(Bloomberg) -- Tesla Inc.’s expectation for the amount of revenue it will recognize from automated-driving software appears to have slipped, according to an analyst.

The carmaker said in a filing last week that it anticipates recognizing $962 million of deferred revenue this year, some of which is related to Full Self-Driving, a set of features Tesla sells that still require attentive human drivers. Alexander Potter, a Piper Sandler analyst, points out that the amount was down from a projection made three months ago for $1.39 billion and inconsistent with comments Chief Executive Officer Elon Musk made during a Jan. 26 earnings call.

“Margins will jump when FSD revenue is unlocked, but Tesla may be losing faith in its forecast,” Potter wrote in a note Sunday while nevertheless raising his price target for the stock. “Musk is bullish re: the prospects for FSD in 2022, but don’t get too excited just yet.”

Musk said on last month’s earnings call that Tesla thinks FSD will become its most important source of profit over time and repeated a prediction that the wide release of the capability will lead to one of the biggest asset-value increases in history.

“We are completely confident at this point that it will be achieved,” Musk said. “My personal guess is that we will achieve Full Self-Driving this year, at a safety level significantly greater than a person.”

Tesla started taking orders for FSD in late 2016, charging a total of $8,000 for the promised benefit of removing human input from driving at an unspecified future date. The company has gradually raised the price since then, bumping it up to $12,000 in January.

Chief Financial Officer Zachary Kirkhorn has said Tesla immediately recognizes roughly half the revenue collected from customers who buy FSD, with the rest going to the company’s deferred revenue balance. As more features are released, Tesla makes determinations about their associated value and has released certain amounts from deferred revenue accordingly.

Musk has repeatedly been overly optimistic about how soon Teslas will be autonomous. In January 2016, he said he was highly confident fully self-driving vehicles would work anywhere in the country within 24 to 36 months. In April 2019, he predicted 1 million Teslas fully capable of driving themselves would be on the road by mid-2020.

Potter said in his report that Piper is unconcerned about the software-related disclosures Tesla made in its 10-K filing last week. The analyst, who rates the shares the equivalent of a buy, bumped up his price target to $1,350. The stock rose as much as 4.5% to $898.88 intraday Monday in New York.

“It’s worth waiting a few more quarters (or years) for 90%+ margin revenue,” Potter wrote.

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