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

Tesla Inc. will stop direct sales of its Fully Self-Driving (FSD) system and turn the software into a monthly subscription service only. The policy change, which will come into force after February 14, 2026, was announced by the Chief Executive Officer (CEO). Elon Musk on Wednesday on social media platform X (formerly Twitter).

This move eliminates the one-time $8,000 down payment option. Currently the subscription costs $99 per month.

Musk did not make a statement about the change and also did not say whether it was happening or not. Tesla’s plans to change the price of the subscription.

At 11:58 a.m. EST on Thursday, Tesla shares were trading at $442.67, up $3.32, or 0.75%.

Why Did Tesla Change Its FSD Sales Plan?

The shift marks a major turning point in Tesla’s business strategy as it continues a prolonged sales slump. Last year, the EV maker lost its title as the world’s number one electric vehicle maker to China’s BYD.

The decision could have an impact on Tesla’s profits.

The latest data from Cox Automotive reveals that Tesla’s fourth quarter sales in the United States fell 15%. This marks the second consecutive month that volume has declined, even after the company introduced lower-priced trims of the Model 3 and Model Y following the expiration of federal EV tax credits. Bloomberg.

To maintain its $1.5 trillion valuation, Tesla is increasingly prioritizing high-margin, recurring revenue streams from artificial intelligence (AI) and software over one-time hardware sales.

Musk predicted that FSD would become an asset worth over $100,000 by 2020. By switching to a subscription-only model, Tesla is effectively treating the software as a service (SaaS) rather than a permanent vehicle upgrade.

According to TechCrunch, increasing subscription signups will also bring Musk closer to hitting vital “product targets” needed to secure the full payoff of his new $1 trillion stimulus plan. The firm directed it to reach “10 million active FSD subscriptions” (calculated daily in ninety-day intervals) before late 2035, among various requirements.

Growing Competition

The timing of this change coincides with a new push from AI chip giant Nvidia, which made a splash at the recent Consumer Electronics Show (CES) in Las Vegas. The chipmaker introduced “Alpamayo,” an open-source artificial intelligence model designed for autonomous vehicle development.

Bundled with Nvidia’s existing DRIVE platform, Alpamayo offers rival automakers a ready-made system for advanced driver support.

Mercedes-Benz Group AG is set to deploy this technology in the US early this quarter, presenting a direct challenge to Tesla’s software dominance with lower up-front capital requirements for the manufacturer.