Tesla's FSD Makes Great Strides Yet Remains Unrecommended

TradingKey - The Full Self-Driving (FSD) system is a key factor influencing Tesla's stock price. Barron’s tested the latest version of the automaker’s FSD system and described it as 'impressive.'

The FSD system has been updated to its latest version, 13.2. Test results show a significant reduction in the number of times drivers need to take control, with a noticeably improved driving experience. It demonstrates professional-level capabilities in navigating parked vehicles, buildings, challenging left turns, speed bumps, and pedestrians. However, Drivers are still required to remain fully attentive.

Truist analyst William Stein noted major improvements in FSD v13, seeing the shift from supervised to unsupervised FSD as a critical milestone. Even so, Stein does not recommend its use, noting that flaws related to AI technology are seen as less concerning, while those tied to Tesla's sensor suite may present a greater challenge for the company.

Tesla CEO Elon Musk has placed the company’s future firmly on solving autonomous driving, stating, "I recommend anyone who doesn’t believe that Tesla will solve vehicle autonomy should not hold Tesla stock."

As Tesla accelerates its push into autonomous driving, Musk is also advocating for a loosening of nationwide regulations on self-driving technology in the US. He anticipates more policy support for this technology under a Trump administration.   

In Texas, Tesla faces fewer regulatory hurdles for its autonomous vehicles, as the state treats them similarly to traditional cars without imposing additional requirements. In October 2024, Tesla announced the launch of an "unmonitored version" of FSD in California and Texas.  

Tesla previously announced plans to launch its FSD in China and Europe during the first quarter of 2025, pending regulatory approval. During a visit to Beijing in 2024, Musk secured preliminary approval to deploy Tesla’s system in China and reached a mapping and navigation agreement with Chinese tech giant Baidu.  

Tesla also aims to launch its robotaxi service by late 2025, a venture estimated to be worth hundreds of billions to trillions of dollars. Investors have high expectations for this initiative. Wolfe Research analyst Emmanuel Rosner commented, "Few industry events have been as widely anticipated as Tesla’s Robotaxi. The opportunity is massive, but they still have a lot to prove."

However, Tesla faces significant challenges alongside its autonomous driving ambitions. Its self-driving technology has yet to gain full regulatory approval, and the company is contending with fierce competition in the electric vehicle (EV) market. Last week, Tesla reported producing 459,445 vehicles and delivering 495,570 units in Q4 2024, representing a modest 2.3% year-over-year growth. But these figures fell short of Wall Street expectations.  

Meanwhile, China’s EV leader BYD achieved record sales of 4.25 million vehicles in 2024, surpassing its previous high of 3 million in 2023 and narrowing the gap with Tesla. Citibank projects BYD will sell 5 to 6 million vehicles in 2025, with overseas deliveries expected to double.  

During Tesla’s latest earnings call, Musk projected a 20%-30% year-over-year increase in Tesla’s deliveries for 2025. However, market skepticism persists. More critically, rising expectations for the launch and profitability of Tesla’s robotaxi service have placed FSD development as a decisive factor for Tesla’s stock performance in 2025.