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Tesla Motors Inc (TSLA) is Using NVIDIA Corporation’s Drive PX 2

Tesla Model 3 (TSLA)

Tesla Motors Inc ‘s lineup is a happy home for NVIDIA’s car platform. Last week, the former had announced a few things about all the vehicles that it produces going forward. They will be equipped with the necessary hardware to enable the cars to drive themselves. At that time, reports suggested that the hardware inside consisted of an NVIDIA (NASDAQ:NVDA) Titan graphics processor. However, as per a note from NVIDIA itself, the vehicles aren’t using Titan graphics cards. Instead, they will be equipped with an NVIDIA product known as the Drive PX 2.

Tesla Motors Inc May be Paying At Least $800 Per Car to NVIDIA

How much does the NVIDIA Drive PX 2 cost? NVIDIA sells its Titan graphics card for around $1,200 directly through its website. For Tesla, the discount would be perhaps on the order of $400 per unit. This would put NVIDIA’s incremental content per car at around $800 — a very respectable figure. However, we now know that NVIDIA is instead supplying a Drive PX 2 platform rather than a single graphics card. So, NVIDIA might be taking in much more than that per car. Electrek reports that NVIDIA was selling Drive PX 2 development kits for $15,000. But at this price, the economics for Tesla don’t work out. (Tesla is apparently charging $8,000 extra to enable this feature. The hardware will be there in all new Tesla cars.)

Tesla Model 3

It wouldn’t be shocking, though, if NVIDIA were selling Drive PX 2 to Tesla for much lower. The average price may be between $1,000 and $1,500. The Motley Fool’s Ashraf Eassa revised the revenue impact. His previously published analysis assumed that NVIDIA would be able to get around $800 per car. It also assumed that Tesla vehicle unit deliveries would stay at around 79,000. But it’s unlikely that Tesla’s deliveries will flatten out anytime soon given its current growth trajectory. Based on these assumptions, however, NVIDIA could stand to see about $63 mn in incremental, annual revenue. Lets ratchet up the assumption around average selling price from $800 per car to $1,250 per car. The latter figure is the midpoint of the range given above. Then, that potential revenue moves up from roughly $63 mn to close to $100 mn.

The Basic Buying Thesis Remains the Same

At the end of the day, NVIDIA’s automotive business is still very small, though it has been growing quite quickly. This Tesla Motors Inc  win is likely to be significant to the growth rate of NVIDIA’s automotive business. But it is still small in the context of the graphics specialist’s overall revenue base. At the same time, the important part of this win isn’t all about money. It is not about how much revenue NVIDIA stands to see from Tesla. Of course, that too would be quite nice. Rather, it is the fact that there appears to be a market for such platforms.

Self-driving car platforms add much more value and are much more difficult to design than a relatively simple system. Should there be a market beyond Tesla for such platforms, then its music for NVIDIA’s ears. In that case, NVIDIA’s automotive business does have a fairly large chance of revenue growth ahead of it. Also, there’s quite a bit of room for gross profit margins — and ultimately profits — to expand, too. Tesla Motors Inc ‘s autopilot experiences have always been a mix of bouquets and brickbats for many users. On the day of the JPMorgan Auto Conference, Bloomberg had carried a post describing using autopilot for 8 hours.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.

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