Piper Sandler believes $Tesla (TSLA.US)$ Inc (NASDAQ:TSLA) may have solved the autonomous vehicle puzzle. Despite CEO Elon Musk's track record of overpromising, the analyst highlighted the latest version of Tesla's Full Self-Driving as the real deal.
What Happened: Piper Sandler analyst Alexander Potter maintained Tesla with an Overweight rating on Sunday, noting that recent advancements in the EV maker's Full Self-Driving technology appear to be underappreciated.
Based on recent reviews on the X social media platform, the Piper Sandler analyst believes the latest Full Self-Driving software from Tesla, version 12.5, is "revolutionary."
"We think investors should consider the possibility that Tesla's decision to host a robo-taxi event (October 10th) isn't a ploy to distract from falling EV sales. Instead, it could catalyze a realization that FSD matters more than anything else," Potter said in a note to clients this week.
Tesla shares are down nearly 7% year-to-date. Despite reporting a couple of weak quarters, Musk has downplayed the results and shifted investor attention toward his vision for the future around AI, Full Self-Driving and robotaxis.
Potter argues that Musk's focus is in the right place. A majority of Piper Sandler's price forecast is based on Full Self-Driving revenue assumptions. If you take Full Self-Driving out of the equation, Piper Sandler's model implies fair value of just $77 per share.
"If investors own TSLA at this valuation, we think they must implicitly believe in FSD," Potter said.
The Piper Sandler analyst expects Full Self-Driving take-rates to inflect "sharply upward," beginning around 2030. The analyst further anticipates approximately 100% fleet-wide Full Self-Driving adoption in 20 years.
Further adding to the analyst's Full Self-Driving thesis, Potter expects subscription prices to eventually rise to more than $500 per month, up from the current price of $99 per month.
"We also think Tesla will eventually sell EVs for ~$31k apiece, at 0% gross margin ... but ultimately, just like cheap flip-phones, we don't think anyone will buy non-FSD cars," Potter said.
Potter expects Tesla's Full Self-Driving to be a major driver of margin expansion, starting in the late 2020s, as he anticipates 90% gross margin on Full Self-Driving-related revenue. Piper Sandler has a price target of $300 on Tesla shares.
TSLA Price Action: Tesla shares were up 5.6% at $232.10 Monday.
