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Tesla stock surges on 'watershed' full self-driving approval in China

Tesla gaining approval to use FSD in China makes its vehicles more attractive and unlocks another revenue stream for the company.

Tesla (TSLA) stock soared on Monday following reports that CEO Elon Musk won Chinese approval to deploy the automaker’s Full Self-Driving (FSD) autonomous software on the mainland.

As was first reported by the Wall Street Journal, people familiar with the matter said that officials told Tesla that they had tentatively approved FSD in the country during Musk’s 24-hour visit to Beijing over the weekend.

Separately, Bloomberg earlier reported that Tesla will use Chinese tech company Baidu’s street-level mapping data to power FSD. Tesla had been previously using Baidu’s mapping data for satellite navigation in its cars. Working with a Chinese company helped with regulatory approval as data privacy and security risks are minimized, the reports said.

Tesla closed up 15.3%, hitting its highest levels since March 1. Tesla stock is now up over 30% in the past four trading sessions.

While pricing for FSD in China was not disclosed, in the US, Tesla charges $8,000 up-front for lifetime use (down from $12,000) and $99 a month for subscription services.

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Adding FSD functionality in China is a big deal for the automaker not just for the added incremental revenue, but also in terms of the competitive edge it gives Tesla against rivals like NIO, Li Auto, XPeng, and even tech giants like Xiaomi, which is entering the auto market with semi-autonomous software of its own.

“What Tesla has to do is stay on the forefront of innovation. They have to be the most technologically advanced solution,” China expert Leland Miller of China Beige Book said to Yahoo Finance. “We have a domestic market that is saturated, and a price war going on … [Tesla] needs to stay on the top of the technological ladder.”

Tesla's lack of FSD in its cars likely weighed on sales in China, where the latest tech features are prioritized. Per China’s Passenger Car Association, Tesla’s share of China’s market slid to 6.7% in Q4 of 2023 from 10.5% in the prior year despite aggressive price cuts. Globally, Tesla’s Q1 deliveries fell to 387K units from 423K a year ago.

Nevertheless, gaining preliminary approval for FSD and a data deal with Baidu are two huge wins for Tesla.

In this photo released by Xinhua News Agency, visiting Tesla founder and CEO Elon Musk, left, meets with Chinese Premier Li Qiang in Beijing, Sunday, April 28, 2024. Musk met with a top government leader in the Chinese capital Sunday, just as the nation's carmakers are showing off their latest electric vehicle models at the Beijing auto show. (Wang Ye/Xinhua via AP)
Tesla CEO Elon Musk, left, meets with Chinese Premier Li Qiang in Beijing, Sunday, April 28, 2024. (Wang Ye/Xinhua via AP) (ASSOCIATED PRESS)

“Musk winning FSD approval in the key China market is a watershed moment for the Tesla story in our view,” Wedbush analyst Dan Ives said in a note to investors, further claiming it was a “home run” for Musk. “While the long term valuation story at Tesla hinges on FSD and autonomous, a key missing piece in that puzzle is Tesla making FSD available in China which is now a done deal.”

Tesla’s focus on autonomous driving and even its robotaxi future are considered long-term catalysts for the company, which has seen its shareholder class turn over and trade significantly lower in the past couple of weeks alone.

A major part of developing Tesla’s AI-powered autonomous software is the collection of vast quantities of data to feed into its software model. Tesla has had to store its data in China since 2021 per a regulatory requirement, Ives noted.

Tesla gaining further approval to migrate that data in China to its US-based servers will accelerate “training its algorithms for its autonomous technology globally,” Ives said. Furthermore, China-based FSD users may be more inclined to opt into the service and use it more frequently because the government has promoted self-driving in various localities, thus providing more data for Tesla to improve its FSD software.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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