Tesla targets AI and software to expand margins beyond car sales

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Tesla targets AI and software

Highlights

Tesla's Full Self-Driving subscriptions reached 1.7 million globally, a 67 percent increase year-on-year, with FSD now its highest-margin segment.
Elon Musk's annual vehicle sales target has been reduced from 20 million to 5 million by 2030 after Tesla delivered 1.6 million vehicles last year.
Tesla faces regulatory delays for broader EU FSD approval until December and intensifying competition from Xpeng, Volkswagen, and global automakers investing in autonomy.

Autonomy subscriptions become a core growth focus

As reported by Ars Technica, citing the Financial Times, Tesla is increasingly positioning software and AI services as a higher-margin growth engine as pressure builds on the economics of vehicle sales alone.

The company still depends heavily on cars for cash generation, with auto sales accounting for 75 percent of total revenue, but analysts say its Full Self-Driving offering is central to plans to lift volumes and profitability. Musk’s earlier target of selling 20 million vehicles annually by 2030 has been reduced to 5 million, a goal that remains demanding after Tesla delivered 1.6 million vehicles last year.

Tesla says more than 75 percent of new vehicles sold in North America include its supervised version of FSD, and it now has 1.7 million active FSD subscriptions globally, up 67 percent from a year earlier. The company has not disclosed recurring revenue from the service, which costs $99 a month in the U.S. depending on market pricing, but analyst Dan Ives says it is already Tesla’s highest-margin business segment and could materially reshape its financial model if adoption expands further.

Regulatory and competitive pressure shape the next phase

Tesla’s push into autonomy still faces regulatory constraints across major markets. Its fully autonomous version of FSD has not yet received approval, and the company is seeking broader EU authorization for its supervised system after approvals in the Netherlands and several other European countries, with a member-state vote now delayed until December.

Competition is also intensifying as Chinese and established global carmakers invest in software, robotics and advanced driver-assistance systems. Volkswagen-backed Xpeng is pursuing EU approval for its XNGP system, while automakers including Hyundai, Toyota, General Motors, Ford, BMW, Mercedes-Benz and Volvo are expanding autonomy and software efforts through internal development or technology partnerships.

A proposed merger between Tesla and SpaceX could add scale in AI, materials, manufacturing and chip access, while also increasing Musk’s control if shareholders and regulators approve it. Supporters argue a combination could strengthen Tesla against Chinese rivals and Big Tech groups with larger AI budgets, but critics warn that tying the businesses more closely together could spread risk across Musk’s most speculative bets.

In our earlier coverage of the intensifying debate over AI safety and cross-border coordination, we highlighted how governments and leading developers are weighing stronger safeguards for increasingly powerful systems. The piece focused on proposals for structured U.S.-China dialogue channels to manage high-risk AI incidents and on the UK’s potential role as a neutral venue for broader international coordination to reduce misuse and systemic risk.

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