Tesla Shifts to Subscription Model For Self-Driving Software

Image Credit: iStock, Sundy -Photography

Sign up for smart news, insights, and analysis on the biggest financial stories of the day.

It’s no exaggeration to say there’s a monthly subscription for everything these days. For $55, Carnivore Club will send you a curated selection of meats. For the cactus lovers out there, there’s the $10 Succulents Box. And Disney+ will beam you an endless catalog of child-distracting content for just $7.99.

Even Tesla is getting in on the subscription game. Elon Musk’s electric car company is now offering its Full Self-Driving (FSD) package for $199 per month. Subscribers can cancel at any time, allowing users to literally test-drive features Tesla previously sold at a one-time $10,000 price tag.

On The Hunt For Recurring Revenue

For just under $200 per month, Tesla drivers (in models equipped with HW3 computer hardware or better) will unlock a whole host of driver-assist features, including auto-parking, auto lane change, and even a virtual valet (the “summon” car function).

In April, Tesla CFO Zachary Kirkhorn said a subscription model would generate long-coveted recurring revenue for the company. Plus, it’s a strategy that’s already worked wonders across the tech world:

  • Adobe shifted from selling software to peddling subscription-based services in January 2017, and quarterly revenues have vaulted from $1.7 billion in Q1 2017 to $3.8 billion in its recent earnings call.
  • And Apple just reported $17 billion of Q1 revenue from its services segment, which includes monthly subscriptions Apple TV+, Apple News+, and Apple Fitness+. The figure represents just under 20% of Apple’s total revenue — not bad for a company that made its name selling hardware.

The popularity of subscriptions has revealed many consumers are comfortable paying (and sometimes forgetting about) smaller recurring fees rather than shelling out hefty up-front payments.

Don’t Call It Autonomous (Yet): Despite offering the “Full Self-Driving” package, Tesla again reiterated its cars are not autonomous and still require “a fully attentive driver, who has their hands on the wheel.”