Why Elon Musk’s Tesla is betting on FSD subscriptions to protect its $1.5 trillion valuation?

Core Viewpoint - Tesla Inc. is transitioning its Full Self-Driving (FSD) system from a one-time purchase model to an exclusively monthly subscription service, effective after February 14, 2026, eliminating the $8,000 upfront payment option [1][3]. Group 1: Business Strategy - The shift represents a significant change in Tesla's business strategy as it faces a prolonged sales slump, having lost its title as the world's top electric vehicle manufacturer to BYD [3]. - Tesla's fourth quarter sales in the United States fell by 15%, marking the second consecutive year of declining volume despite introducing lower-priced trims of the Model 3 and Model Y [3]. - To protect its $1.5 trillion valuation, Tesla is focusing on high-margin, recurring revenue streams from AI and software rather than one-time hardware sales [4]. Group 2: Financial Implications - The subscription model could impact Tesla's bottom line, as it shifts the perception of FSD from a permanent vehicle upgrade to a software-as-a-service (SaaS) offering [4]. - Increasing subscription sign-ups is crucial for CEO Elon Musk to meet product goals tied to his $1 trillion incentive plan, which includes achieving "10 million active FSD subscriptions" by late 2035 [5]. Group 3: Competitive Landscape - The timing of this transition coincides with increased competition from Nvidia, which introduced an open-source AI model for autonomous vehicle development, potentially providing rival automakers with advanced driver assistance systems [6]. - Mercedes-Benz Group AG plans to deploy similar technology in the US soon, posing a direct challenge to Tesla's software dominance with lower upfront capital requirements for manufacturers [7].