Morgan Stanley said Lemonade’s new insurance product offering approximately 50% lower rates for miles driven using Tesla‘s Full Self-Driving software represents a turning point in how insurers treat autonomous technology.
“Lemonade’s newly announced autonomous car insurance product represents a notable step in legitimizing autonomous driving, and in particular, Tesla‘s Full Self-Driving technology, in the eyes of the insurance industry,” analyst Andrew Percoco wrote in a research note Thursday.
Percoco reiterated an Equalweight rating and $425 price target on Tesla, implying slight downside from Wednesday’s closing price of $431.44.
The note came shortly before Tesla began offering robotaxi rides without safety monitors in Austin on Thursday — a milestone the company had initially aimed to achieve by year-end 2025.
Lemonade x Tesla
Lemonade said Wednesday it collaborated with Tesla to analyze vehicle driving data, which it integrated into its usage-based risk prediction models.
The New York-based insurer concluded that vehicles driven with FSD “are involved in far fewer accidents.”
The insurer committed to lowering prices further as FSD improves. “The safer FSD software becomes, the more our prices will drop,” Wininger said.
‘Positive Feedback Loop’
Percoco said Lemonade’s approach signals that its underwriting models “recognize materially improved accident risk when the vehicle is operating autonomously.”
“This is an important shift in how insurers treat advanced driver-assistance and autonomy features,” he wrote.
“Lemonade’s approach suggests growing confidence in the data coming from Tesla‘s fleet, using real-world driving outcomes to assess safety performance rather than relying solely on theoretical or regulatory classifications,” the analyst added.
Percoco said lower premiums could drive a virtuous cycle for Tesla.
“Lower insurance premiums create a recurring economic benefit for drivers who choose to engage FSD more frequently, reinforcing Tesla‘s value proposition,” Percoco wrote.
“Over time, as FSD adoption accelerates we expect a positive feedback loop, whereby miles driven correlates to improved performance and safety, and further reductions in insurance costs,” Morgan Stanley’s analyst added.
Percoco sees insurance becoming “one of the clearest market-based validators of autonomous driving progress.”
“For Tesla, this marks another step toward external recognition that FSD is moving from an experimental feature to an economically relevant safety system,” he wrote.
Arizona and Oregon
Lemonade’s Autonomous Car Insurance will launch in Arizona on January 26 and Oregon a month later. The policy supports intermittent FSD use and households with multiple Tesla vehicles on a single plan.
The announcement comes a week after Tesla said it would stop selling FSD as a one-time purchase starting February 14, offering it only as a $99 monthly subscription to boost adoption.
Tesla’s FSD is currently on Version 14 and receives weekly updates. Earlier this month, Vice President of Software AI Ashok Elluswamy said the company had begun rolling out “reasoning” features ahead of the V14.3 series.
CEO Elon Musk previously said “by v14.3, your car will feel like it is sentient.”
