Tesla (TSLA) -) shares extended declines in Wednesday trading after the National Highway Traffic Safety Administration ordered the carmaker to issue a massive update to its Autopilot software.
The regulator, which has been investigating Tesla's use of its Autopilot and Full Self-Driving technology for more than two years, said the carmaker must roll out a software updates for more than 2 million vehicles over the coming weeks. These include the Model S luxury sedan, Model X full-size SUV, Model 3 sedan and Model Y midsize SUV.
Tesla markets Autopilot, which is standard in every car it sells, as "an advanced driver-assistance system." It notes, however, that the system, as well as upgrades such as Enhanced Autopilot and Full Self-Driving Capability, are "intended for use with a fully attentive driver, who has their hands on the wheel and is prepared to take over at any moment."
Tesla said around 2.03 million cars, nearly all of the vehicles it has ever sold in the U.S., are affected by the update, which will begin today, adding that the new software was included in production runs starting in early December.
“Automated technology holds great promise for improving safety, but only when it is deployed responsibly,” NHTSA said in a statement. “Today’s action is an example of improving automated systems by prioritizing safety.”
Tesla shares were marked 2.5% lower in mid-day Wednesday trading to change hands at $231.15 each, a move that would extend the stock's six-month decline to around 10.65%.
Tesla's profit potential from Full-Self-Driving
Tesla CEO Elon Musk has long touted both the technological and profit potential of Full-Self-Driving, telling investors earlier this year that he is "very open" to licensing it to other car companies.
"We are already in discussions with — early discussions — with a major [original-equipment manufacturer] about using the Tesla FSD. So, we're not trying to keep this to ourselves," Musk said in early July. "We're more than happy [to] license it to others."
The FSD licensing plans provided perhaps the key surprise to an otherwise tepid second-quarter earnings discussion. That focused mostly on Tesla's efforts to defend profit margins amid an expected slowdown in September-quarter production, an uncertain macro environment and ongoing EV price cuts.
Tesla now has data based on around 300 million miles of driving, a figure Musk said would "soon be billions of miles and tens of billions of miles." That, he said would provide a huge competitive advantage for the company as it ramps up investments in artificial intelligence and other technologies to harness its potential.
While there are many articles that do not accurately convey the nature of our safety systems, the recent Washington Post article is particularly egregious in its misstatements and lack of relevant context.
— Tesla (@Tesla) December 12, 2023
We at Tesla believe that we have a moral obligation to continue…
"I've been wrong in the past. I may be wrong this time (but) I think we'll be better than human by the end of this year," Musk said. "We see a clear path to Full-Self-Driving being 10 times safer than the average human driver."
Gene Munster, an analyst at Deepwater Asset Management and a longtime Tesla bull, thinks the licensing of FSD technology could generate as much as $20 billion in annual revenue within five years of the first agreement.
"If Tesla is successful at landing one OEM, the likelihood that other car makers jump on board is high. It would be a similar dynamic we’ve seen over the past month as seven car makers have signed up to use Tesla’s charging network," Munster said.
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