Source: Zhitong Finance

Unexpectedly for the Chinese market, Tesla CEO Elon Musk (Elon Musk), the visit seemed to have an immediate and very positive effect, both for Tesla's performance itself and for the bullish confidence of Tesla followers in the stock market. Global electric vehicle leader$Tesla (TSLA.US)$It is trying to completely remove two key barriers to introducing its highest-end FSD (Fully Autonomous Driving System) level assistance system into the world's largest automotive market.

Tesla followers in the US stock market also responded positively to Musk's sudden “trip to China.” Tesla's stock price once rose nearly 8% during the pre-market trading period for US stocks, but now it has risen 7.37% to 180.7 US dollars.

According to the latest reports, some overseas media reported on Monday, citing people familiar with the matter, that some Chinese officials told Tesla that Beijing had initially approved Tesla's plan to launch an FSD function in China.

Also, according to media reports citing information revealed by people familiar with the matter, the American electric car manufacturer will cooperate with Chinese tech giant Baidu Inc. (Baidu Inc.) to develop maps and precise navigation functions to prepare for the deployment of its so-called “fully autonomous driving” (FSD).

Baidu is one of only 20 qualified suppliers in China with top map qualifications that can be applied to autonomous driving functions. The partnership with Baidu will enable Tesla to deploy the Chinese company's autonomous drive-level navigation and mapping services. Tesla has been using Baidu to develop in-vehicle maps and navigation apps since 2020.

Additionally, it is worth noting that Tesla has also passed a very critical data security and privacy compliance requirement in China, which will help ease some of the government's concerns about data security issues.

According to information, Tesla CEO Musk paid an unannounced visit to China on Sunday. Industry insiders generally speculate that its purpose is mainly to seek approval of Tesla's driver-assistance software. If this software becomes popular in the Chinese market, it may completely reverse the automobile manufacturer's declining revenue trend. However, this set of assisted driving functions requires continuous supervision, and it is not yet possible for Tesla's electric vehicles to fully realize unmanned autonomous driving driven by supercomputers. This may be possible with Tesla's unmanned autonomous taxi (Robotaxi), which Tesla plans to launch later this year. In terms of FSD pricing subscriptions, the company directly purchases FSD in the US for a one-time fee of $8,000, or a monthly subscription fee of $99.

Although Tesla initially received a “red carpet welcome” in the Chinese market, recently Tesla's fate in the Chinese market has begun to bleak due to more intense competition from emerging domestic electric vehicle manufacturers such as BYD (BYD) and “Wei Xiaoli”. According to agency estimates based on data from the China Passenger Vehicle Association, Tesla's share of the Chinese automobile market declined sharply from 10.5% in the first quarter of last year to around 6% in the fourth quarter of 2023.

Advanced driver assistance systems are becoming more and more common in the Chinese market. Many local electric vehicle manufacturers, including Xiaopeng, Xiaomi, and Huawei, use this type of function as the core selling point of electric vehicles, but the most advanced FSD-level autonomous driving system faces strict supervision and review systems in China, and has not yet been officially implemented.

Needless to say, Musk is very hopeful that Tesla can get rid of the first quarterly revenue year-on-year decline since 2020 as soon as possible. Even after a sharp price cut, car sales declined. Musk said last week that the company is laying off workers by at least 10% to cut operating costs and hopes to speed up the launch of new models, including cheaper electric models. These models may be ready in early 2025, if not before the end of the year.

Dan Ives, a senior analyst at Wedbush Securities, a well-known Wall Street investment agency, said in an interview with the media that Musk's unexpected trip to China was “a watershed moment.” “This may open the doors of Tesla FSD in the Chinese market, and I think this is a real golden opportunity for them, because in China, advanced assisted driving and the most advanced FSD have always been a relatively missing piece of the electric vehicle puzzle.”

Although the boosting effect of Tesla FSD after it is officially approved in China may help Tesla's stock price recover some of its lost ground, facts have proven that the system has problems even within the US, and the strict scrutiny of the Chinese regulatory authorities may not be relaxed. America's top automotive safety regulator has just launched an investigation into the company's poor performance Autopilot assist system, saying that 20 car accidents have occurred since December last year, all involving vehicles equipped with wireless software updates.

Musk knows very well how to boost Tesla shareholders' confidence in the short to medium term

At the Tesla earnings call conference last week, Musk emphasized the importance of “FSD fully autonomous driving” to Tesla's future, saying that if investors doubt the company's ability to achieve autonomous driving and autonomous taxis, then they should not invest.

As Tesla's leader, Musk knows very well how to boost Wall Street investment institutions' message about Tesla in the short to medium term, which is to do his best to promote FSD in the Chinese market.

According to a recent article in the Global Times, industry insiders generally speculate that Musk's sudden visit to China is aimed at promoting FSD's implementation in China. Earlier this month, Musk said on social networking platform X that Tesla will “soon” launch FSD to Chinese users. Also, on the first day of Musk's visit to China, Tesla “very coincidentally” passed China's automotive data security compliance requirements.

According to a CICC research report, if FSD is promoted in China, the complete data loop needs to be in the country, and preparations must be made in terms of data collection and model training to consider whether the BEV sensing solution can be well adapted for localization. In China, FSD mapping may require cooperation with major Chinese manufacturers, and Tesla needs to build a local computing center and set up a local algorithm adaptation team.

Tesla's stock price has evaporated by more than 50% since this year, mainly due to investors' concerns that Tesla will become increasingly disadvantaged in the electric vehicle price war. After all, the influence of new Chinese electric vehicle manufacturers such as BYD has surpassed Tesla in the Chinese market. Tesla's financial data for the first quarter may be extremely bleak. The 9% year-on-year decline in Q1 revenue fell short of market expectations. Not only was it the first year-on-year decline since the second quarter of 2020, but it was also the biggest decline since 2012. Affected by price cuts and the burning of money to develop AI, net profit fell 55% year on year.

Musk actually knows better than any investor that Tesla urgently needs a catalyst that can be implemented in the short to medium term. Compared to Tesla's cheap model Model 2, which is only likely to be released next year, promoting FSD's launch in China, the world's largest electric vehicle market this year, will undoubtedly give Tesla investors confidence in the short term, and push many Wall Street investment institutions to reinvest their capital into Tesla, which is based on a “growth logic narrative.”

Wall Street has huge differences over Tesla's stock price outlook! FSD is probably the strongest catalyst for Tesla's stock price

Currently, Wall Street analysts' overall views on Tesla are rapidly deteriorating. The general rating is only “hold”. In comparison, tech giants such as Microsoft and Google all have “strong buying” ratings; mainly because signs of slowing down in electric vehicle sales under pressure from high interest rates are becoming more and more obvious, and incentives from governments around the world are drying up. Wall Street analysts' average forecast for Tesla's stock price over the next 12 months is $183.12, but the lowest is only $85 and the highest is $310. The difference between the two is huge.

In March, Wall Street bank Wells Fargo downgraded Tesla's rating to the lowest level on the grounds that the company could cut prices further, which would affect its profits. Wells Fargo analyst Colin Langan downgraded Tesla's rating from “hold and wait” to “reduce holdings” and drastically cut its price target from $200 to $125 ($168.29 as of Friday's close). He said that Tesla's overvaluation compared to other “Big Seven US stocks” “may be a risk.”

Deutsche Bank recently downgraded Tesla's rating from “buy” to “hold” and drastically lowered the target price from $189 to $123. The agency pointed out that the launch of the cheap model Model 2 is likely to be delayed, and that the company has switched its strategic focus to the robot taxi business, which is considered risky to manage and will take years to mature.

However, bullish Tesla analysts, represented by Adam Jonas (Adam Jonas) from Morgan Stanley, generally said that Tesla's fully automated driving (FSD) V12 test drive service is also an important logic for them to be optimistic about Tesla's stock. Jonas reiterated Tesla's “buy” rating and the highest Wall Street target price of 310 dollars.

The analyst, who is bullish on Tesla, said that Tesla's Dojo supercomputing system is expected to promote the full popularization of Tesla FSD and autonomous taxis, and may increase the market value by up to 500 billion US dollars, just as AWS means to Amazon. Wall Street investment institutions with similar views also include Wedbush, which is bullish on Tesla's stock price to $275.

Starting March 16, 2024, Tesla will launch the latest FSD Beta V12.3 advanced driver assistance system to FSD subscribers and subscribers across the US. This push is the first large-scale push after V12.1 and V12.2 were tested by employees and a small number of users. This push means that the commercial implementation of the end-to-end smart driving model represented by FSD V12 is within easy reach. Afterwards, on March 26, Musk sent an email to all Tesla employees requesting North American employees to install and activate FSD V12.3.1 before delivering the vehicle to provide new customers with an FSD test drive experience.

As a result, the Tesla FSD V12 is expected to begin accelerated implementation in North America, and full launch is just around the corner, while the new “end-to-end” architecture is expected to significantly improve FSD's intelligent driving capabilities and user experience, and Tesla Smart Driving is expected to usher in its own ChatGPT moment.

According to Gene Munster, managing partner of Deep Water Asset Management, the FSD function is significant to Tesla's stock price, and FSD has the potential to significantly increase revenue.

Bradley Gerstner, CEO of Altimeter Capital, recently said that Tesla's fully automated driving (FSD) beta V12 is also one of the reasons he is so optimistic about Tesla stock. “When I test-drove it, it was a bit like the ChatGPT moment,” he notes. “(Tesla) completely abandoned their previous deterministic model and switched to an imitation learning model. This was the first time it really felt like a person was driving a car, and Waymo was still a deterministic model.”

Editor/jayden