Key Morningstar Metrics for Tesla
- Fair Value Estimate: US$200.00
- Morningstar Rating: 3 stars
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Very High
What We Thought of Tesla’s Earnings
Our key takeaway from the Tesla TSLA earnings call was the firm’s strategic shift to the development and ramp-up of the new affordable sport utility vehicle, while focusing on cost cuts for its existing vehicles. This marks a change from the 2023 strategy, which was to cut prices to generate strong volume growth. We updated our forecast for lower near-term deliveries growth and lower near-term automotive gross profit margins. As a result, we reduce our fair value estimate on Tesla stock to US$200 per share from US$210. We maintain our narrow-moat rating.
Tesla shares were down 6% in aftermarket trading. We think the market reacted negatively to management’s outlook that Tesla will enter a period of lower growth in 2024. At current prices, we view shares as fairly valued, with Tesla stock trading a little below our updated fair value estimate but in 3-star territory. Accordingly, we recommend investors wait for the stock to offer a solid margin of safety before considering an entry point.
Tesla Deliveries Expected to Slow
This strategic shift will create different near- and long-term dynamics for the company’s deliveries growth. In the near term, we expect deliveries to grow at just 10% and 6% in 2024 and 2025, respectively. This is far below the 50%-plus annual growth that Tesla has generated over the past decade. However, as the company launches its affordable vehicle by the end of 2025, we expect Tesla will resume double-digit deliveries growth in 2026. As the affordable vehicle surpasses the Model 3/Y platform in deliveries, we forecast Tesla will deliver a little over 5 million vehicles by 2030.
We expect different near- and long-term profit margins as well. While Tesla is developing its affordable vehicle and ramping up Cybertruck production, we expect the company will see a period of lower automotive gross margins, in line with the 19% generated in 2023. Over the long term, we continue to forecast margin expansion as Tesla begins to sell its affordable vehicles and benefits from its cost-reduction initiatives.