Is Sirius XM Finally a Tesla Stock Play?

A nagging blindspot for Sirius XM Holdings (SIRI 0.69%) investors and most Tesla (TSLA 0.33%) drivers is finally starting to fade in the rearview mirror. Tesla's best-selling vehicles -- the Model Y, Model 3, and Cybertruck -- don't ship with factory-installed satellite radios. Only the higher-priced Model S and Model X come with Sirius XM receivers, but those cars accounted for less than 4% of Tesla's deliveries last year.

An owner of one of the more widely owned models has had to use Bluetooth connectivity to stream from their phone app or use Tesla's web browser to access an active Sirius XM subscription. The process is getting far more seamless this week as Tesla pushes out its holiday update.

In a move that is long overdue, Tesla's latest over-the-air software update introduces an application to stream the country's only satellite radio provider's platform from the car's app tray. It's better late than never, and given Sirius XM's moribund stock chart anything that can get it dancing to a new beat is welcome.

Passing spaceships

Sirius XM investors have had a rough year. The stock has been cut nearly in half, a stark contrast to the otherwise rising equity prices. The market is concerned about its recent turn to negative revenue and subscriber growth, leading worrywarts to wonder if the satellite radio monopoly peaked last year. It doesn't seem to matter that Warren Buffett is increasing his stake in Sirius XM or that the media stock is trading for just 8 times forward earnings. Investors are ignoring the low valuation and nearly 4% yield on fears that the Sirius XM is slowly fading out.

On the other end of this story, Tesla shares have risen more than 40% this year. The electric vehicle maker has seen its stock nearly triple since the start of last year. Tesla's rise comes despite sluggish sales and concerns that tax credits on electric vehicle purchases can go away soon. This is offset by Tesla's ability to boost year-over-year margins despite slashing prices on its cars and subscription services to remain competitive in a cutthroat market.

The two companies may seem to be going in different directions, making this story even more interesting. There are a lot of new features rolling out in this week's Tesla software update that will be ultimately more valuable to car owners. However, this simple move to include a Sirius XM option on the Tesla app tray screen can actually sway the market's perception of one of this year's biggest losers.

Making waves

Access to Sirius XM directly on Tesla's dashboard screen is a move that investors should be applauding, but will it move the needle? Bears can argue that Tesla drivers are already tech savvy enough to know all of the cool streaming apps that are cheaper than Sirius XM if not entirely free. Tesla's large monitor can stream from many of the popular streaming video services while parked, so it's not as if its owners are starved for entertainment. Since this doesn't involve the installation of an actual Sirius XM antenna, it will also require that drivers are paying Tesla for Premium Connectivity or have an active Wi-Fi connection through their phone. This shouldn't be a deal breaker, but it's a point worth noting.

Let's look at the rosier side of this argument. Tesla drivers spend a lot of time in their cars. Drive past a Supercharger station, and you'll see many drivers choosing to stay in their vehicles even as they juice up their batteries. When they're driving they can't access distracting video entertainment on the front screen, so a lot of audio content is ultimately being consumed.

Sirius XM is also doing something clever here. It is giving Tesla drivers an introductory offer a free monthlong trial subscription to check out the live platform. Even better, it's offering a two-year subscription for $9.99 a month, a deep discount to its retail offering. A lot of Tesla owners will consider the free month. Far less will stick around as discounted members, but it's all incremental for Sirius XM given its high fixed costs and low variable expenses.

The kicker here is that despite the recent decline in subscribers, Sirius XM's monthly churn rate remains near its historical lows. Its listeners are loyal. The trick has been the funnel of potential new subscribers. This new offering should help ramp up the tire kickers. Curiosity could inspire engagement, and a month from now folks who would have never considered Sirius XM may be engaged with the antics of Howard Stern or the wide range of live news, sports, talk, and music channels. The media stock isn't moving on the news, but this is one tidbit that may take time to start rolling.