In my years as an analyst, and now as a tech investor, I have cherished the simple truth that companies want to highlight the metrics to investors that make them look good. This dynamic becomes more apparent when management teams start and stop reporting new metrics. The stopping of metrics often causes investors to question growth, like when Netflix stopped giving subscriber numbers, or when Apple stopped giving iPhone unit numbers. On the positive side, starting metrics signals to investors to pay attention. A notable example was late in 2014 when Apple began reporting Services revenue and gross margin. It ushered in a new chapter in the Apple investment case, shifting the focus away from units to high margin, higher growth Services. It resulted in multiple expansion from the low teens to the high 20s over that period. I believe Tesla opened a new chapter around FSD with the decision to break out subscription numbers, a metric that I would hope they report on a quarterly basis.

This disclosure was the most important development from the quarter. FSD subscriptions grew approximately 38% y y, materially outpacing the roughly 20% growth in the cumulative installed vehicle base. In this case, the decision to disclose FSD subscriptions suggests Tesla expects this metric to continue improving.

The implication is that FSD adoption is beginning to accelerate, which passes my back of the envelope test given my experience that FSD has made material improvements over the past six months. This matters because FSD adoption is the foundation for Tesla’s longer term autonomy ambitions, with improvements in FSD paving the way for a faster rollout of Robotaxi.

One element that flies in the face of my assessment that FSD is ready for a breakout was Elon’s comment on the call that he remained cautious on the timing of when we will reach full autonomy, emphasizing for the third quarter in a row that he is paranoid about safety given edge cases, such as complicated intersections, remain a challenge and it is best to think of the rollout as measured. All that said, FSD is not perfect, but it is getting close, and in the end I believe people many people will pay $99 a month for the service and most will pay $49 (an option that is not currently being discussed).

Tesla also provided more concrete updates on its Robotaxi rollout. Management indicated plans to add seven new cities by mid year, ahead of prior expectations that implied those would come by the end of calendar 2026. New to the conversation is that by year end, Tesla expects Robotaxi operations in more than a dozen cities, suggesting an accelerating deployment cadence.

Importantly, Musk described vehicle growth within the Robotaxi fleet as potentially doubling month over month, implying an exponential ramp rather than a linear one. While this sets a high execution bar, it reinforces the company’s growing confidence that FSD is ready for prime time.

In the broader context of ride sharing, autonomous miles remain a small fraction of total usage. Even when combining Tesla’s efforts with existing players such as Waymo, autonomous rides are still just scratching the surface of total ride sharing miles, and by my math should account for about 1.5% of total ride hailing miles in the US in 2026. When we annualize FSD miles driven, it suggests less than 0.2% of total miles driven in the US this year will be Tesla FSD miles, about 5B out of 3.3T miles.

One negative from the call was comments that the shift away from the upfront FSD purchase price toward a $99 month subscription model will have a negative impact on gross margin. This transition introduces near term margin pressure given that, to date, 70% of FSD subscriptions were the upfront $8K version, of which I estimate they recognized about $3K upfront, far more than the $99 a month model they are moving to. By my estimate, this change alone could reduce reported automotive gross margins ex credits from roughly 17.9% to closer to 16%. The Street is expecting gross margin ex credits to be about 15% in 2026, a number that I believe is more than achievable despite the ending of the upfront $8K FSD option. Over the long term, the elimination of the upfront option should boost margins because it pushes revenue out into future quarters, assuming customers continue to subscribe.

A second negative on the call was the lack of guidance around what to expect on the delivery front this year. The Street currently expects approximately 7% growth y y, while our base case remains flat. From my view, investors would be satisfied if they miss the Street delivery estimates this year as long as deliveries stabilize. A modest decline would be manageable, while a double digit contraction would be more problematic, though I think that outcome is unlikely given lower priced offerings are backfilling lost demand from the ending of the tax credit back in September.

An x factor on deliveries this year is how the focus on higher volume platforms, Model 3, Model Y, and Cybercab, impacts sales. The goal is to prioritize production of higher volume products, specifically the Cybercab, that will capitalize on improvements in FSD. Elon said to expect production of Cybercab to begin in April and then follow an S curve, starting slow and growing exceptionally, which suggests some Cybercab units will land this year. I believe history will repeat itself, and it is more prudent to expect Cybercab production to ramp in 2027, which is needed for the company to hit current Street expectations calling for 15% delivery growth next year, a step up from what will likely be flat this year.

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