In a recent update letter for Q1 2024, Tesla announced that its Full Self-Driving (FSD) users have collectively driven over 1.3 billion miles. This significant milestone has not gone unnoticed, catching the attention of RBC Capital analyst who recognizes the potential impact of Tesla's FSD technology.

According to the analyst, winning the FSD market in China would be a game-changer for Tesla. It would not only enable a substantial fleet of vehicles capable of charging subscription fees, but also solidify Tesla's position as the industry standard for software. The potential for FSD to become a mandated safety feature, similar to seat belts and airbags, adds to its appeal in the market.

Tesla's FSD is proving to be a safer alternative, as data from US accident reports suggests that it is five times safer than the average US fleet. This safety advantage could potentially lead to regulators mandating Level 2+ autonomy as a life-saving tool. Furthermore, there could be opportunities for Tesla to license its FSD software to other Original Equipment Manufacturers (OEMs), expanding its market presence.

Despite concerns over the possibility of software piracy by Chinese companies, the RBC Capital analyst believes that FSD encompasses more than just software. It includes millions of hours of driving data and algorithm training, which have been accumulated through autopilot interactions and takes place in the US. However, the analyst acknowledges that the process of FSD licensing may take longer compared to the potential for Chinese companies to recreate the technology.

The impact of successfully implementing FSD in China, combined with increased customer adoption, could pave the way for Tesla to surpass 6 billion cumulative miles - a benchmark set by Elon Musk in his Master Plan Part Deux back in July 2016. Musk had stated that worldwide regulatory approval for autonomous vehicles would require approximately 6 billion cumulative miles (10 billion kilometers) of driving data.

The RBC Capital analyst highlights that FSD represents 20% of Tesla's valuation, with an assumed 8% market share. While concerns over software piracy remain, the potential for Tesla to dominate the FSD market in China and become an industry standard for software remains a strong investment thesis.

In conclusion, Tesla's Full Self-Driving technology continues to make strides and gain recognition for its potential impact. With over 1.3 billion cumulative miles driven by FSD users and the possibility of expanding its market share in China, Tesla appears to be well-positioned to take full advantage of the opportunities that lie ahead.