Tesla’s long-promised global expansion of its Full Self-Driving system may be approaching a pivotal milestone. Elon Musk said the company expects regulatory approval for its supervised FSD technology in both Europe and China as early as next month, a development that could materially reshape Tesla’s revenue mix at a time when electric vehicle demand is losing momentum worldwide.

The comments, delivered during Musk’s appearance at the World Economic Forum in Davos, underscore how central autonomous driving has become to Tesla’s strategic outlook. Investors responded positively, with shares ticking higher, reflecting renewed optimism that software monetization could offset mounting pressures in the core vehicle business.

Why Europe and China Matter for Tesla’s Strategy

Approval in Europe and China would represent more than a symbolic win. Together, the regions account for a substantial share of global vehicle demand and are seen as essential to Tesla’s long-term growth ambitions. Until now, Full Self-Driving has remained largely a U.S.-centric product, limiting Tesla’s ability to scale recurring software revenues internationally.

Europe has proven particularly challenging due to stringent safety standards and a fragmented regulatory framework that requires alignment across multiple jurisdictions. China, while more centralized, applies its own complex oversight, especially around data security, mapping, and automated driving systems. A green light in both markets would signal growing regulatory confidence in Tesla’s technology and operational controls.

Software Monetization Gains Urgency as EV Sales Cool

The timing is critical. Tesla reported a second consecutive annual decline in vehicle deliveries in 2025, marking a notable shift for a company long defined by relentless volume growth. Increased competition, pricing pressure, and brand fatigue in some markets have eroded margins, forcing management to emphasize higher-margin software and services.

Full Self-Driving is central to that pivot. Sold as a premium option or subscription, the system offers Tesla a pathway to recurring revenue with minimal incremental manufacturing cost. Musk has repeatedly framed Tesla less as a traditional automaker and more as a technology platform spanning autonomy, artificial intelligence, and robotics.

Regulatory Scrutiny Remains a Structural Constraint

Despite the optimism, Full Self-Driving remains controversial. Regulators globally continue to scrutinize advanced driver assistance systems amid concerns over safety, driver complacency, and the clarity of marketing claims. Tesla’s system still requires drivers to remain attentive at all times, a distinction regulators have been keen to reinforce as the industry edges toward higher levels of automation.

Any incidents or compliance missteps could delay approvals or lead to restrictive operating conditions, limiting the commercial upside. In Europe especially, regulators have historically taken a conservative stance, prioritizing harmonized safety outcomes over rapid innovation.

Competitive Pressure Is Intensifying

Tesla’s push into autonomy also comes as competitive dynamics shift. The company has already ceded its position as the world’s largest EV maker to China’s BYD, reflecting the rapid rise of domestic Chinese manufacturers with cost advantages and strong local support. In this context, differentiated software capabilities are increasingly seen as Tesla’s key lever to defend market share and pricing power.

What to Watch Going Forward

Approval timelines, rollout scope, and pricing strategies will be closely watched by investors. Equally important will be early adoption rates and regulatory conditions attached to deployment in each region. If approvals materialize as expected, Tesla could enter a new phase where software, rather than vehicles, drives incremental growth.