Tesla Inc (NASDAQ) experienced a rise in subscriptions to its Full Self-Driving (FSD) software during the second quarter, fueled by promotional offers and price reductions. RBC analysts have suggested that further price cuts could provide a significant boost to the stock.

RBC observed a 60% increase in the cumulative miles driven using Tesla’s FSD software from the first quarter, following a free trial in March and a subscription price reduction to $99 per month from $200. Despite this growth, FSD adoption within Tesla’s fleet remains in the single digits, lagging behind competitors.

The analysts believe that a further reduction in FSD pricing could substantially enhance subscriptions, improve margins immediately, and potentially elevate Tesla’s stock valuation by emphasizing its autonomy narrative. This move could also position Tesla to license FSD to other manufacturers.

RBC highlighted that a price cut for FSD could serve as a critical catalyst for Tesla’s stock. However, the brokerage has lowered its price target for Tesla to $224 from $227 due to a weaker delivery growth forecast for 2025. This adjustment follows disappointing earnings and delivery figures in the second quarter, attributed to softer margins, increased competition, and production issues.

CEO Elon Musk has frequently highlighted the potential of FSD and robotaxis as significant revenue drivers. However, FSD remains a niche product, and the launch of robotaxis has been postponed from August to October.

Aside from FSD and robotaxis, RBC expects Tesla’s energy storage revenues to increase and anticipates benefits from higher regulatory credits. Tesla’s stock has fallen nearly 23% this year, affected by declining deliveries and price cuts in response to intensifying competition in China, which have impacted its margins.

Paraphrasing text from "Investing" all rights reserved by the original author.