Tesla price cuts need to continue to bolster adoption of self driving software

Investing.com -- Tesla's slew of price cuts on its electric vehicles have dented margins and proved fertile ground for bearish bets, but some on Wall Street suggest more price cuts are needed for the EV maker to gain more market share, paving the way for increased adoption of its high-margin full-self driving product.   

The rate of Tesla full-self driving, or FSD, penetration is critical to the company's margin trajectory, but FSD penetration has been lackadaisical to date," Canaccord said in a recent note, adding that more price cuts would allow the EV maker to lay out the carpet to charge customers for software upgrades.

Despite what the name implies full self-driving, isn't fully autonomous driving, but helps drivers change lanes, make left and right turns, follow on- and off-ramps, and take forks in the road as necessary to reach the destination. 

"[W]e see additional price cuts as necessary for a material change in FSD penetration," Canaccord said. 

FSD software costs $12,000 initially or a monthly fee of $99 or $199, depending on whether a customer it upgrading from Basic Autopilot to FSD or, to Enhanced Autopilot to FSD, respectively. 

Tesla's penetration rate for FSD in North America is in the high-teens, Canaccord estimates, citing Tesla's update on a fourth-quarter earnings call, while globally FSD penetration stood at about high single digit. 

Tesla Inc (NASDAQ:TSLA) is down nearly 30% year to date.