Analysts are eager to see Elon Musk-led EV maker Tesla improve its falling margins with a greater emphasis on its Full Self Driving (FSD) software rollout.
Tesla's FSD software is currently too expensive at $12,000, according to George Gianarikas, manager director at brokerage Canaccord Genuity.
"We think the company should cut the price of that FSD to really increase that penetration and really start to have the margins turn," Gianarikas tells Yahoo Finance.
Gianarikas notes that FSD has a very high gross margin because it is a software upgrade. Tesla, like an increasing number of OEMs, is able to upgrade its software offerings in over-the-air updates.
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Tesla also offers FSD as a subscription costing up to $200 per month, and has faced additional calls from Tom Narayan, global autos analyst at bank RBC Capital Markets, to drop the price.
“[FSD] has such a low attach rate. Only about 5pc of Tesla owners pay [for it]. It is a high price, but what if they lower the price, the attach rate explodes and people realise how amazing this product is?" Narayan told US broadcaster CNBC recently.
The firm has invested heavily in R&D on FSD, as well as a next generation vehicle that will start production in the second half of 2025.
Improving margins from these products could be the boost that puts Tesla stock on an upward trajectory once again, according to Gianarikas.
"For the stock to really get its legs... the next-generation vehicle needs to start to ramp, or people need to gain confidence that it is going to ramp and be successful. Second, their margins need to go up and the most likely lever for that happening is the increase of FSD penetration which leverages the AI that they have built," he says.
Some analysts have downgraded Telsa stock amid concerns over a slowdown in demand growth.
"When you look at the earnings revisions for the last twelve months, they have been terrible," Gianarikas says. "In the US people are [also] worried about production of their new Model 3."
Tesla shares have fallen by 25pc since the beginning of 2024, now trading at around $177 per share.
Ciaran has written about finance, politics and culture. He is passionate about e-mobility and what it means for our way of life.
Ciaran has a Masters in Ancient Philosophy from Oxford University.
