Chinese electronics company Xiaomi has entered the electric vehicle (EV) market with the launch of its new electric sedan, the SU7, which is estimated to be $4,000 cheaper than Tesla's popular Model 3. The pricing battle between Tesla and Chinese automakers has been heating up, and Xiaomi's entry into the EV space could increase pressure on Tesla's sales in China.

Colin Rusch, the Managing Director and Senior Research Analyst at Oppenheimer, recently discussed the significance of vehicle pricing and full self-driving (FSD) capabilities in the international EV market. He mentioned that the functionality of FSD is becoming increasingly important, as companies strive to develop self-driving systems that mimic human driving behavior effectively.

Rusch emphasized that Xiaomi's more affordable electric sedan could put additional strain on Tesla's sales within China. While Tesla has established a solid foundation, the company's challenge lies in scaling up its operations. Tesla has previously aimed for a 50% annual growth rate, but this year may see a more modest 20% growth rate.

Rusch also highlighted Tesla's strategic shift towards recurring revenue and software-driven sales. This move, combined with the upcoming FSD release and the one-month trial of FSD in the US market, signifies Tesla's transformation from a hardware manufacturer to a full solution provider. The maturity and functionality of FSD are still being scrutinized, with mixed reviews circulating online. However, if consumers embrace the FSD features and recognize its ability to mimic human driving behavior more effectively than other competitors, it could be a significant advantage for Tesla.

In terms of FSD pricing, Rusch stated that there is ongoing price discovery in the market. Evaluating the cost of ownership on a per-mile basis, it hovers around $1, with an additional dollar for the value of time spent in the vehicle. However, the true value proposition and consumers' acceptance of FSD features are yet to be determined. As self-driving technology advances to level 4 and 5, where hands-off driving is a reality, Rusch believes there will be substantial value in FSD. Although an upfront payment of $12,000 to $15,000 may seem reasonable, the $200 monthly subscription fee over time adds up significantly. The market is currently being tested, and the next year will reveal more about consumer preferences.

Overall, with the launch of its affordable electric sedan, Xiaomi has intensified the competition for Tesla in the Chinese EV market. While Tesla remains a dominant player, Xiaomi's pricing advantage and Tesla's strategic shift towards software-based solutions and FSD will be critical factors to watch in the coming months.