Tesla's Full Self-Driving Business Is Growing Fast. But There's a Catch for Investors
2026-10-26 19:39
•Prosper Junior Bakiny •The Motley Fool
••• • Axe Cap view
Tesla’s Full Self-Driving Growth: Impressive but Priced In
Tesla’s booming FSD subscription service is a bright spot, yet its sky-high valuation leaves little margin for error.
Tesla’s latest numbers tell an uneven story. While electric vehicle sales in Q3 stalled and even slipped 3% year-on-year, the Full Self-Driving (FSD) subscription business surged, now boasting 1.74 million active users and generating roughly $1 billion annually. This shift towards software subscriptions is good news for margins and recurring revenue, a welcome contrast to the volatile hardware business. But Tesla trades at nearly 150 times forward earnings, baking in huge expectations for FSD scaling to robotaxis and beyond. For South African investors, the USD/ZAR exchange rate will play a big role here. A weaker rand against the dollar inflates the local cost of owning Tesla shares or gains from Tesla-linked funds. Regulatory hurdles and uncertain customer retention rates in the FSD subscription model add more question marks. It’s a classic case of growth priced to perfection, where one stumble could rattle confidence. this is just our opinion and not financial advice
Given the thin margin for error at current valuations and local currency risks, I’d watch Tesla from the sidelines rather than buy now. Monitor USD/ZAR closely as weakness in the rand increases entry cost. Wait for clearer FSD proof points or a valuation reset.
- TSLA
- USD/ZAR
- FSD subscription retention lower than expected
- Regulatory clampdowns on autonomous driving in key markets
6/10
Tesla's Q3 earnings were mixed with flat revenue and declining EV sales, but the Full Self-Driving subscription business showed strong growth with 1.74 million active subscribers and a $1 billion annual run rate. While FSD subscriptions carry higher margins and support vehicle sales, Tesla's valuation at 149.3x forward earnings already prices in significant success, and key risks remain including FSD retention rates, robotaxi scaling challenges, and regulatory headwinds.
Our take is based on reporting first published by The Motley Fool.