RBC Capital Maintains Positive Outlook on Tesla Inc (NASDAQ:TSLA), Citing Potential of Full Self-Driving (FSD) in China

On Monday, RBC Capital reiterated its Outperform rating on Tesla Inc (NASDAQ:TSLA) along with a price target of $293.00, signaling continued confidence in the company’s trajectory.

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The investment firm emphasized the significant opportunities presented by Tesla’s Full Self-Driving (FSD) technology gaining traction in China. Specifically, RBC Capital highlighted the potential for Tesla to introduce subscription fees for a vast fleet of vehicles equipped with the advanced FSD system.

In their investment thesis for Tesla, RBC Capital underscored the pivotal role of FSD, suggesting that success in China could position Tesla as a standard-bearer in the software industry. Furthermore, the firm speculated on the potential for regulators to mandate Level 2+ autonomous features, akin to past safety requirements such as seat belts and airbags, due to their potential to save lives.

According to Tesla’s accident data, its FSD technology reportedly boasts a safety record five times better than the average US vehicle fleet, further enhancing its appeal and potential adoption.

RBC Capital anticipates the emergence of multiple Level 2+ autonomous driving entities initially, but believes Tesla’s position could strengthen over the long term. Additionally, the firm sees a prospect for Tesla to license its FSD software to other manufacturers, albeit considering it a minor aspect of their valuation thesis.

Addressing concerns about potential replication by Chinese companies, RBC Capital noted that T FSD encompasses not only software but also extensive driving data and algorithm training, predominantly conducted in the US. This unique amalgamation may serve as a safeguard against replication efforts.

In valuing T, RBC Capital has assigned a 20% weight to FSD technology, assuming  captures an 8% market share in the segment. The firm maintains an optimistic outlook on ‘s growth prospects in the Chinese market and the broader adoption of its autonomous driving technology.

InvestingPro Insights and Additional Considerations

In light of RBC Capital’s positive assessment, InvestingPro offers further dimensions to consider regarding financial status and market performance.

With a robust market capitalization of $609.39 billion and a relatively high P/E ratio of 44.52, Tesla’s financial strength is evident. Although the P/E ratio has slightly adjusted to 39.31 in the last twelve months as of Q1 2024, it still reflects a premium valuation, likely attributed to Tesla’s leadership in the automobile industry and innovative technologies like FSD.

InvestingPro Tips highlight ‘s favorable cash-to-debt ratio, indicating solid financial health, particularly crucial when entering new markets like China with FSD technology. Moreover,  substantial return over the last week, with an 18.47% price total return, suggests positive investor sentiment, potentially influenced by developments such as the FSD’s potential in China.

However, it’s essential to note that despite current optimism, 20 analysts have revised their earnings forecasts downwards for the upcoming period, hinting at potential challenges ahead

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