Safety Could Be a Key Selling Feature of Tesla's Model 3

By Evan Niu, CFA Markets Fool.com

It's hard to understate the importance of safety in the auto industry, especially as U.S. automotive deaths rose 6% to approximately 40,200 in 2016 -- the second year of increased fatalities. That was the first time in a decade that auto fatalities exceeded 40,000.

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Like most automakers, Tesla (NASDAQ: TSLA) puts a lot of emphasis on the safety of its vehicles and proudly touted that the Model S achieved the best safety rating of any car ever tested back in 2013. As the company continues to learn and evolve, its track record for safety should also improve over time. With the Model 3 preparing to launch within a matter of months and addressing a vastly larger market than Tesla's current vehicles, the vehicle's safety will be paramount.

Model S and Model X. Image source: Tesla.

Safety first

Morgan Stanley analyst Adam Jonas, a longtime Tesla bull that downgraded shares to "equalweight" last summer only to re-upgrade shares to "overweight" in January, has put out a research note to investors this morning highlighting this theme.

Jonas believes that the Model 3 could potentially be 10 times as safe as the average car on the road today, and safety qualities are considered among the most important selling attributes of any car. This would be achieved through a combination of hardware and software features that "provide a level of active safety that could significantly lead all other cars on sale today." The analyst believes that this could be an "aha!" moment for customers later this year when the vehicle launches.

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How Tesla vehicles with second-generation Autopilot hardware sense the environment. Image source: Tesla.

The key factor in improving the Model 3's safety will be continued improvement of Autopilot. While Tesla's new version of Autopilot that uses the second-generation hardware suite is just now rolling out and is off to a rough start, it should begin to improve rapidly as Tesla's machine learning kicks in. Even for vehicles that do not activate Autopilot, Tesla still gathers sensor data for fleet-learning purposes and includes many safety features like automatic emergency braking (AEB) as standard. Jonas estimates that by 2025 to 2030, the company could be gathering roughly 400 million miles worth of data per day (including a future Tesla Mobility ride-sharing service).

Jonas is referring to the current state of advanced driver assistance, and not any sort of full Level 4 or Level 5 autonomous driving, which is likely still years away both on the regulatory front as well as the technological one. Tesla says its current hardware suite will eventually be capable of full self-driving capability. Jonas believes that the Model 3 will provide "superhuman" assistance to human drivers in the safety department.

The firm is reiterating its overweight rating alongside a $305 price target.

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Evan Niu, CFA owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.