Tesla Is About To Transition To a SAAS Model (Software As A Service) - Dwarfing Its Sales of EVs

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Tesla is about to transition from a company selling EVs, to a software as a service model, which will dwarf its auto sales.

Tesla Transitioning To SAAS

Tesla is in a transition phase, to a SAAS (Software As A Service), or as some would like to call it: $AA$. The reason $ signs have replaced the S letters is that this transition will be far more profitable for Tesla than selling EVs ever could be.

Here's why this transition is going to be far more beneficial for Tesla in a simplified way:

Let's take Tesla's Model 3 vehicle, the Highland long range, being sold for $47,740. There is currently no EV tax credit for this vehicle, however, recently, it was re-released with a multitude of updates.

Tesla has a roughly 18% gross margin on its vehicles, so we can say that Tesla is making this vehicle for about $47,740 * .82, which is $39,146.80. Tesla makes about $8,593.20 on this vehicle. Of course, it's not quite this high with taxes, accounting, and other things, but for purposes of this illustration, I will leave it at that.

As EVs become cheaper over time, due to increased competition from China EV makers, selling expensive EVs is no longer going to be a profitable business - unless those EVs can do something that all the other EVs cannot. 

And that something is drive itself AND make money for the owner. Tesla vehicles are going to become appreciating assets and money printing machines - and I think relatively soon, as in the next couple of years.

Now, all of a sudden, you have a vehicle that is going to be in huge demand because it can drive itself and make its owner money. Generally, only antique and classic cars have made their owner's money, but no longer.

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The Potential of SAAS Earnings For Tesla

If you thought Tesla making $8,593.20 for selling a Model 3 long range was a lot, let's look at the numbers for Tesla offering FSD in a one-time and monthly payments. This is just for a customer buying FSD and doesn't include anything from ride-sharing income that Tesla could make by offering that as a service - which it will eventually do.

That same Model 3 long range with an outright purchase of FSD for $12,000, is now selling for $59,740. That about doubles the gross margin to 35%.

Even the monthly subscription of $199 is useful for Tesla because more people are likely to start doing this. All of a sudden, Tesla starts becoming like Netflix and is making money from monthly subscribers, not just EV sales (let alone the energy business, which is growing faster than the auto business in volume growth).

Monthly Subscription Benefits

If 30% of the 5 million Tesla vehicles on the road today subscribe to FSD monthly, Tesla starts making $298,500,000 per month in mostly pure profit, which is about $900,000,000 or nearly $1 billion per quarter in profit, or nearly $4 billion in annual profit per year. That's just from subscriptions to FSD.

I see the price of FSD also going up as Tesla approaches the point it will be able to run its cars as robotaxis. I can see it becoming $399 a month and $20,000 or more to buy outright. The reason will be the earning potential. But, I don't think it's there yet.

This is nice to see for this vehicle, however, Tesla can't make any of their existing vehicles in any meaningful volume beyond 1 or 2 million per model type.

More Volume Of Vehicles Is Needed

Tesla is going to need to be able to make more vehicles to see the real benefits of the SaaS model. Once Tesla gets to the point it can make its compact car and the robotaxi vehicle in the many millions per year, the FSD monthly subscriptions balloon to multiple billions per quarter of profit. But, that isn't where the real money is for its SAAS.

The real money is in ride-sharing as a fleet. As a simple example, look at this:

Tesla offers a SaaS model for ride-sharing. A Tesla owner simply uses an app, like Uber, to send their car out for ride-sharing. Tesla takes 30% of the revenue generated from this.

Let's say a car earns $30,000 in a year for an owner. Tesla simply takes $9,000 of this, its 30% cut, and the owner gets $21,000. Tesla may even take less than this to incentive fleet owners more.

At half the current Tesla vehicles doing this, or 2.5 million, you get $22,500,000,000 - that's $22.5 billion per year in revenue that is mostly profit for Tesla for its ride-sharing services. Tesla will likely keep 80% or more of this income, as SAAS is very profitable.

For Tesla to make this a reality, it must do the following:

  1. Greatly increase FSD adoption, which it is doing by offering a one-month free trial and doing test drives upon delivery - as well as using neural nets only to greatly improve it.
  2. Get FSD to the point it can be considered level 4 autonomy. At this point, there won't be a steering wheel nag, and it's possible there won't need to be a driver. This requires more training video data.
  3. Get FSD to level 5 where no driver ever needs to be in a Tesla vehicle. At this point, Tesla can simply run a ride-share SaaS model.
  4. Greatly increase production with lower cost models. These lower cost model cars will be able to be made in a larger quantity, which will benefit from the SaaS model.
  5. Create an app or software that allows Tesla owners to offer their vehicle as a ride-share in Tesla's fleet. The car, connected to the app, should be able to go out and find people who need a ride. The app also needs to connect monetarily for the user so they can make money.

The Future Is Nutty

The future becomes nutty and at these vehicle volumes using FSD, with Tesla making $9,000 per year of the vehicles doing ride-sharing, and 50% of all Tesla vehicles doing ride-sharing, let's look at Tesla's ultimate goal of 20 million vehicles per year.

At this point, there are likely 50 million or more Tesla vehicles on the road. If 25 million are doing ride-sharing and Tesla keeps 30% of the average of $30,000 made per year for each vehicle, you get a staggering $225 billion per year in mostly profit for Tesla.

Of course, this doesn't include the robotaxi vehicle, which Tesla most likely won't sell and offer ride-sharing by itself. Tesla will keep 100% of the earnings for that. Tesla will make this vehicle very durable and low maintenance.

With 10 million robotaxi vehicles earning $30,000 per year and Tesla keeping all the profits from that, you have $300,000,000,000 or $300 billion in yearly profit for Tesla of which most goes to the bottom line.

Tesla is going to have to pay a dividend on its stock at that point... And never mind if Tesla reaches hundreds of millions of vehicles on the roads...

For Further Reading: Watch This Tesla Park Itself Using The New Auto Park Feature

What do you think about Tesla becoming a SaaS company? Will this greatly accelerate the bottom line of Tesla?

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Hi! I'm Jeremy Noel Johnson, and I am a Tesla investor and supporter and own a 2022 Model 3 RWD EV and I don't have range anxiety :). I enjoy bringing you breaking Tesla news as well as anything about Tesla or other EV companies I can find, like Aptera. Other interests of mine are AI, Tesla Energy and the Tesla Bot! You can follow me on X.COM or LinkedIn to stay in touch and follow my Tesla and EV news coverage.

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