- Tesla has a huge software advantage over legacy automakers that will bring in billions in deferred revenue in coming years, according to a Tuesday report from Loup Ventures' Gene Munster.
- The EV maker is three to five years ahead of competitors when it comes to offering over-the-air software updates, Munster said, showing its technological lead.
- It will take legacy automakers at least three years to offer advanced driver-assistance technology that matches Tesla's "full self-driving" feature, which is out in a limited beta version, he said.
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Tesla has dominated the global electric-vehicle market for years with its quick, popular, and long-range EVs. And going forward, its edge isn't just in vehicles but in its software, too.
That's according to a Tuesday report from venture capitalist Gene Munster, managing partner of Loup Ventures. As the auto industry moves from gas to electric power — and from human input to automated driving — he says automakers will have the potential to "realize tech-like margins" if they can get the software right.
Tesla, according to Munster, is years ahead of its competitors in that regard, and his firm estimates that the EV maker will recognize billions in deferred software revenue through 2022.
He noted Tesla has "built electrification, connectivity, and autonomy capability into its vehicles from the start," introducing over-the-air (OTA) software updates — which let the automaker beam out system upgrades on a regular basis — in 2012. Other firms, by his estimation, are playing catch-up.
Legacy automakers have begun to introduce OTA updates, but they're typically focused on infotainment features like maps and Bluetooth, while Tesla's updates can improve range, power, braking, safety, and driver-assistance features, Munster said. According to the report, most legacy car manufacturers are 3-5 years away from offering "meaningful OTA updates" in part because automakers need to make more of their cars' functions software-controlled in order for the updates to be useful.
The latest beta version of Tesla's "full self-driving" feature — and the fact that the firm was able to release it through an OTA update in October — further proves Tesla's technological lead, according to Munster. He estimates Tesla is three years ahead of other carmakers when it comes to advanced driver-assistance features.
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But Tesla's "full self-driving" feature, despite its branding, doesn't give cars full autonomy. And Consumer Reports ranked Tesla's Autopilot driver-assistance system below Cadillac Super Cruise in October. Autopilot performed the best out of all the packages the outlet tested, but received poor marks in areas like maintaining driver attention and clearly communicating when it's safe to use.
Loup Ventures estimates that Tesla will recognize $1.1 billion in deferred software revenue in 2021 and $1.5 billion in 2022 from OTA updates, access to its Supercharger network, and, mainly, the adoption of "full self driving." Customers have purchased the feature, but Tesla has not fully released it, so it hasn't yet recognized that revenue on its balance sheet.
For reference, the report noted, GM's 2019 entire operating income was $5.4 billion, while Ford's was $574 million.
The price for the "full self-driving" add-on — currently $10,000 — has increased consistently and will continue to grow as the technology matures. Elon Musk has said that the ultimate value of it could be "in excess of $100,000" and that the feature may move to a subscription model, which would spread its revenue out past an up-front payment.
Despite Munster's bullishness, industry watchers are split on how Tesla — currently the world's most valuable automaker by market cap — will perform on the market in the near future.
A recent JP Morgan report called Tesla stock "dramatically" overvalued and set a price target of $90 (Tesla shares were trading around $640 Tuesday). Munster, for his part, told CNBC earlier this month that shares of the EV maker could soar to $2,500 over the next three years, a gain of more than 300%.
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