FSD’s countdown to China, can Tesla recover lost ground？

In April this year, Tesla CEO Musk lightning visited China, and his arrival also reminded the outside world of the discussion and speculation about Tesla’s fully autonomous driving (hereinafter referred to as "FSD") entering China.

In fact, there are many challenges that FSD needs to face when entering China, including data and privacy protection, whether domestic users can accept the charging model, and the approval of relevant departments. There have been many unknowns in this matter.

However, just as the new energy vehicle circle intends to improve its smart driving ability while waiting for the FSD to enter China, Musk said at the just-held conference call of Tesla’s second quarter earnings report that the FSD is expected to be approved in China and Europe before the end of this year.

Under this circumstance, the entry of FSD into China is no longer a "pie", but a "countdown" is officially started. If it goes well, domestic Tesla owners are expected to be able to pay for the use of FSD after half a year. Can this help Tesla recover the increasingly stalled sales in China?

Tesla’s profit margin is under pressure.

While the outside world is concerned about FSD’s entry into China, Tesla recently released its financial report for the second quarter of 2024. The report shows that Tesla’s total revenue in the second quarter increased slightly by 2% to $25.5 billion, but after removing the income from carbon points, the actual automobile sales revenue was only $18.5 billion, down 7% year-on-year, slightly lower than the market expectation of $18.7 billion; Net profit was $1.494 billion, down 45% from the same period last year.

In the face of such a financial report, Tesla’s share price also fell by more than 8%. However, for Tesla, whose share price has been soaring since the second half of the year, the adjustment of the current share price is obviously only a slight fluctuation.

Since July, Tesla’s share price has risen by more than 25%, and even in the first week of July, its increase has erased all the declines in the first half of the year.

The "good" behind Tesla’s share price, on the one hand, is because its delivery volume in the second quarter was 444,000 vehicles, which was 4.8% lower than that in the same period of last year, but increased by 14.7% from the previous month. Considering the relatively weak global electric vehicle market, for Tesla, this achievement has been better than the expectations of Wall Street institutions.

On the other hand, what attracts capital to vote with their feet is Tesla’s "new story" in artificial intelligence and autonomous driving. In April this year, Musk announced that Tesla will release Robotaxi products on August 8 this year (it has been confirmed that it will be postponed until October); In July, Musk said that humanoid robots will be produced in small batches next year.

In addition, as the world’s first "end-to-end" AI autopilot model, the FSD V12 released at the end of last year is also a trump card of Tesla. Insiders pointed out that Tesla may be the most underestimated "AI investment target" in the US stock market. Some analysts estimate that the valuation of FSD business may be as high as 1 trillion US dollars, which has exceeded Tesla’s market value of about 800 billion US dollars.

But to prop up such a huge imagination space, it is natural to have the support of real money and silver. Tesla said in a statement that the profit in the second quarter was mainly affected by "artificial intelligence projects" and "restructuring costs", which refers to the cost paid by Tesla for 10% layoffs in April this year.

However, in addition to the increase in investment, Tesla’s sluggish auto business is the key to affecting the company’s performance. The decline in revenue is mainly due to the decline in automobile sales, while the profit is "halved" because bicycle profits continue to shrink, and the price war brought about by fierce competition in the industry has equally affected every car company.

In the second quarter of this year, Tesla’s overall gross profit margin was 18%, which was higher than that in the past three quarters, but the gross profit margin of automobile sales fell to 13.9%, which means that Tesla’s gross profit for selling a car was $5,784, compared with $13,809 two years ago.

FSD will play catfish again

Therefore, this "FSD entry into China" has also become a key step for Tesla to regain lost ground in the China market, not only to promote product iteration and boost sales in China market, but also to preempt the layout of the intelligent networked automobile market.

As we all know, in the field of intelligent driving, Tesla has always been a "minority". Compared with the lidar route selected by most domestic auto-driving solution suppliers, the pure visual route that Tesla adheres to has not been the mainstream solution.

However, since last year, the domestic "smart driving route" has quietly turned its direction. On the one hand, the rise of the big model has become a new variable. Musk said that after FSD adopts end-to-end technology, it only needs 3,000 lines of code to replace the original 300,000 lines of code.

On the other hand, more and more car companies are actively promoting urban NOA, but compared with high-speed scenes, the complexity of road conditions in urban scenes can be described as a geometric increase. If we still rely on the research and development method of handwritten rules by engineers, it will not only increase the development cost of car companies, but also slow down the progress of "opening the city" of car companies.

Xia Yiping, CEO of Extreme Vietnam, once said that whoever has not landed this year "can drive the whole country intelligently" will fall behind in the wave of intelligence. The intelligent competition of the new energy cycle has reached a white-hot stage, and every car company is naturally "hurry up and don’t hurry up".

It can be seen that "FSD’s entry into China" has accelerated the intellectual competition between car companies, but for car companies, FSD may not be an invincible opponent.

For example, some time ago, Chairman Xpeng Motors went to California to experience the version of FSD V12.3.6, and gave an evaluation of "excellent performance". However, when talking about FSD’s entry into China, he said that it would face more complicated road conditions when it landed in China.

Yu Chengdong, chairman of BU, a smart car solution, welcomed Tesla FSD to enter the China market, but also stressed that Huawei enhanced its perception by using lidar, which made Huawei’s intelligent driving system outperform Tesla in the China market.

However, compared with the optimism of car companies, the view that there is no direct competition with Tesla seems to be more conservative. Some insiders said that Tesla’s chips and algorithms are strongly bound, and the cost is only one-third of that of peers.

In contrast, the domestic automobile products that focus on intelligent driving have not been optimized for software and hardware integration, and more hardware will be invested in the future to achieve the same effect. In addition, Tesla has obvious data advantages. It is reported that the cumulative mileage of Tesla FSD has exceeded 1.6 billion kilometers.

Of course, in terms of intelligent driving, whether Tesla is a "wolf" or a "sheep" will eventually have to wait until the FSD lands, so that domestic car companies and Tesla can compete with each other. But before that, Tesla has obviously become a "catfish", driving the development of the entire intelligent driving industry in China.

Tesla can also accelerate learning in the competition. When Tesla can get more domestic city driving data support, it may be able to take another share in the field of Robotaxi and accelerate the development in the field of intelligent networked vehicles.

Tesla expects to boost sales.

Of course, compared with the higher-order assisted driving explosion, whether it can boost domestic market sales through FSD may be a more urgent task for Tesla.

To be sure, the market has high hopes for the new version of FSD. If the landing effect of China market is amazing, it will not only change the pattern of the whole autonomous driving industry, but also bring "early adopter effect" and promote Tesla’s sales.

But at the same time, there are still many uncertainties about the performance of FSD in the domestic market. First, considering the differences in road conditions and training scenes at home and abroad, it is hard to say whether the performance of the "tiger" FSD is better than that of the "local snake".

Second, it is a question of willingness to pay. After accessing the credit card data of about 3,500 Tesla owners who participated in the FSD trial, some institutions found that less than 2% of Tesla users decided to buy after trying the FSD. It is reported that the price of FSD in China is 64,000 yuan. How many fans can FSD gain under the background that "paid awareness" has not been cultivated in the domestic autonomous driving market?

The most important factor is that intelligent driving has never been the only factor that affects consumers’ car purchase decisions. For Tesla, the lack of new models is the root of its recent continuous price war, and the lack of product innovation can only attract consumers by adjusting prices.

It is reported that Tesla’s new car is scheduled to start production in the first half of next year and will be produced on the same production line as the current model. However, sharing the production line means that the cost of this new car may not drop so much, and it is impossible to spell the "price bayonet", so the differentiation ability of the new car is even more critical.

It is worth mentioning that Tesla also talked about "price" in the financial report meeting. He said that he knew that many car manufacturers offered attractive price concessions, but in the long run, the price war was not a problem for Tesla.

So far, Tesla’s gross profit is still among the top cars, but it has room for price reduction, but it has no "one drop to the end". Although there are considerations such as product matrix and market reaction, instead of "scale rather than profit", perhaps Musk still prefers to use profits to accelerate the development of artificial intelligence and autonomous driving business.

As Musk said, "If someone doesn’t believe that Tesla can solve the problem of autonomous driving (FSD), they should not become investors in Tesla", which may be Tesla’s "long-term doctrine" in the future.

However, at the moment when intelligent assisted driving is rapidly heading for autonomous driving and even unmanned driving, are users really ready for the "unmanned era"?