Tesla shares surge as Elon Musk returns from China with FSD 'Game Changer'

Elon Musk needs China's support in order to fulfil his longer-term AI and autonomous-driving ambitions.

Apr 29, 2024 - 18:30

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Tesla shares surge as Elon Musk returns from China with FSD 'Game Changer'

Tesla (TSLA) shares powered higher Monday after the electric-car maker won a key endorsement for the rollout of its driver-assistance technologies in China following Chief Executive Elon Musk's surprise weekend visit to Beijing.

Musk is looking to use Tesla's driver-assistance technology, which it calls Full Self-Driving (FSD), as both a key plank in its longer-term growth story and an offset to slumping electric vehicle sales in key markets worldwide.

The world's second-richest man traveled to Beijing Sunday as part of an unannounced visit that included a face-to-face meeting with Premier Li Qiang as he looks to persuade officials to both allow the rollout of FSD technologies in the world's biggest car market and potentially export the data it collects into Tesla's nascent AI-powered data centers.

The China Association of Automobile Manufacturers (CAAM) provided a key component of the first of Musk's ambitions by endorsing Tesla, along with scores of other domestic carmakers, as being compliant with China's data-security rules.

Elon Musk may have achieved a significant milestone tied to Tesla's FSD ambitions in China following a surprise weekend visit to Beijing.

Multiple media reports also suggest Tesla was able to cut a deal with tech giant Baidu (BIDU) , often referred to as the Google of China, to support some of the mapping and navigation functions of its FSD technologies.

Honored to meet with Premier Li Qiang.

We have known each other now for many years, since early Shanghai days. pic.twitter.com/JCnv6MbZ6W— Elon Musk (@elonmusk) April 28, 2024

The endorsement from the China auto association marks a significant milestone in Tesla's FSD efforts in China, where sales have fallen to multiyear lows amid intense competition from low-cost rivals and amid the broader EV demand slump.

FSD approval is first step to autonomy

Tesla, which has around 1.7 million of its cars on the road in China, launched its FSD software around four years ago but was forced to limit some of its functioning owing in part to the country's data-collection rules.

However, Tesla likely also needs permission from Beijing to transfer data collected by its FSD software to its AI supercomputers in the U.S. in order to truly launch an autonomous driving option.

Tesla's FSD technology does not render cars fully autonomous. The company urges drivers to keep their hands on the steering wheel, maintain strict attention to the road and be prepared to take corrective action as necessary.

Musk has long argued that Tesla is not just a carmaker but rather is a collective of tech-focused startups and sees these divisions as pivotal to his broader ambition of a creating a world packed with self-driving cars powered by his company's AI-led technologies.

Morgan Stanley analyst Adam Jonas has said Tesla's DoJo supercomputer, which is powered by AI technologies, could add more than $500 million to Tesla's market value "through a faster adoption rate in mobility (robotaxis) and network services (software as a service)" over the coming years.

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"If Musk is able to obtain approval from Beijing to transfer data collected in China abroad, this would be a 'game changer' around the acceleration of training its algorithms for its autonomous technology globally," said Wedbush analyst Dan Ives, who carries an outperform rating and a $275 price target on the stock.

"While demand challenges exist in China for Tesla, [Wall Street] is looking through this painful transition period for the long-term growth story to emerge for Musk & Co., with FSD a key ingredient in that recipe for success," he added.

Tesla shares were marked 10.5% higher in premarket trading to indicate an opening bell price of $185.93 each, the highest since early March.

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