Key Takeaways
- Tesla said 75% of its new North American deliveries in the third quarter came with an FSD subscription, up from 55% in the second quarter, and active subscriptions rose 67% to 1.74 million.
- FSD looks like it’s helping sell Teslas, but Tesla hasn’t said how many of those subscribers are paying.
- With the first month of a subscription free, an RBC analyst asked on the call whether the paid rate is closer to 30% to 40%, and Tesla’s CFO didn’t give a clear answer.
- At 185x forward earnings, Tesla is priced on autonomy, so the paid attach rate is the number to watch in its next report.
Tesla (TSLA) beat Wall Street’s estimates on earnings, auto margins and free cash flow last night, and the stock is down this morning anyway.
The number everyone’s talking about is 75%. That’s the share of Tesla’s new North American deliveries in the third quarter that came with a Full Self-Driving (FSD) subscription. It’s a record, up from 55% in the second quarter. Active FSD subscriptions hit 1.74 million, up 67% from a year ago.
Elon Musk’s response, in a post on X? “People are buying FSD with a car attached.”
Which is big…if true.
Car margins aren’t holding up this stock
The car business did beat this quarter. Auto gross margin excluding regulatory credits came in at 18.1%, ahead of the 16.7% analysts expected, according to Gary Black, managing partner of The Future Fund.
But zoom out, and Tesla’s overall gross margin has fallen from 25.6% in fiscal 2022 to 18% in fiscal 2025…
And yet investors are paying a great deal for Tesla’s earnings…
At 185x forward earnings, Tesla trades well above its five-year average of 108x (though below its peak of 243x last December). That’s not even a software stock valuation. Maybe we should think of it as an “Elon stock” valuation.
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Then there’s the free month
An RBC analyst pointed out that the first month of an FSD subscription is free. He asked whether, by his math, the paid attach rate in North America was more like 30% to 40%.
As Black noted on X, CFO Vaibhav Taneja “didn’t really answer what seemed like an easy question.”
Since Feb. 14, Tesla has sold FSD only as a monthly subscription, at $99 a month in the US. If trial months count toward the 75%, as the analyst’s question assumed, every new car that leaves the lot on a free month counts, whether its owner pays in month two or not.
And the paid business is still small next to the car business. Even if all 1.74 million subscribers paid the full $99, that’s roughly $2 billion a year, about 2% of the $94.8 billion Tesla brought in during fiscal 2025.
FSD may be selling cars. But now it has to pay.
Tesla says it believes FSD is driving demand in the markets where it’s available, and it’s working with regulators to get approval in others. I buy that. A free month that gets 75% of buyers to try the software is a strong sales tool. It also helps the car business that pays the bills today.
But analysts aren’t counting on an FSD-led sales boom quite yet…
They expect revenue to climb from $94.8 billion in fiscal 2025 to $106 billion this year and $145 billion by 2028. Revenue came in a touch light this quarter, at $28.05 billion, so nothing here gives them reason to raise those numbers. The 75% won’t either, until Tesla says how many of those drivers pay.
The risk is that autonomy gets cheaper for everyone. Black, for one, remains cautious on the stock, citing negative earnings revisions and the “continuing commoditization of autonomy.”
So what does the 75% really mean? FSD is very likely helping Tesla sell cars, and it’s still a small slice of revenue for a stock priced on it.
My take: At 185x forward earnings, Tesla needs paying subscribers, and the paid attach rate is the one number I’d want before buying Musk’s line.
Of course, Tesla could settle the question in its fourth-quarter report in late January. If the paid rate comes in anywhere close to 75%, Musk will have a point.
So what is Tesla stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
