Morningstar Key Metrics for Tesla
• Fair Value Estimate: $210.00
• Morningstar Rating: 1 star
• Economic Moat: Narrow
• Morningstar Uncertainty Rating: Very High
Tesla TSLA stock has made a sharp U-turn in 2024, rallying to record highs, with the company seen as benefiting from chief executive Elon Musk’s new prominence in Washington.
The stock began 2024 mired in a multi-year slump, as investors grew increasingly concerned about the company’s ability to maintain a fast pace of growth. As recently as late May, Tesla was changing hands at around $182 per share, down some 55% from a November 2021 peak of $409.97.
Sentiment became more positive thanks to a strong third quarter, notes Morningstar strategist Seth Goldstein. Following Election Day, the stock rocketed higher. On Nov. 5, Tesla closed at $251.44. Since then, it’s risen more than 73%, hitting a new all-time high of $436.23 per share.
“The election of Donald Trump has been viewed extremely positively for Tesla, as CEO Elon Musk will be an adviser to Trump. Musk could help shape policies, such as autonomous driving regulations, that could remove regulatory hurdles for Tesla’s Robotaxi business,” Goldstein says.
Tesla’s Strong Q3 Earnings
Tesla’s most recent results offered an improved picture from earlier in the year, when profit margins fell to multi-year lows and investors increasingly questioned its growth trajectory.
Goldstein notes that in the third quarter, Tesla posted solid growth in deliveries and, critically, an expansion in profit margins within the automotive segment. “Management also guided to 20%-30% deliveries growth in 2025, which implies Tesla’s deliveries will continue to see strong growth in the coming years,” he says.
Additionally, Tesla announced it plans to begin testing its full self-driving mode unsupervised in Texas and California in 2025. “This is a key step toward making Robotaxis a reality, which is driving enthusiasm for the stock,” Goldstein says.
Tesla’s Growth Outlook
Despite the optimism from Tesla’s management, Goldstein doesn’t think the company’s growth targets will be achieved: “We think Tesla will likely see slower deliveries growth in 2025 versus management’s guidance for 20%-30%, as we think the new Model Q will likely take longer to ramp up production than the guidance implies. Additionally, we think the Cybercab will probably be delayed past 2026, as Tesla’s FSD software will likely need more time to improve.”
How Investors Should View Tesla Stock
Goldstein assigns Tesla stock a fair value estimate of $210 per share, and it’s trading at almost twice that price. It has a Morningstar Rating of 1 star, meaning it’s considered significantly overvalued. “We don’t think investors should buy Tesla at the current price,” Goldstein explains. “The current stock price implies nearly everything goes right for Tesla in terms of new product launches, revenue growth, and margin expansion.”
As an example, Goldstein says current prices imply “Tesla will see strong deliveries growth and become a top 3 global automaker by the end of the decade. Additionally, the current share price implies the Robotaxi business is successful and sees a high adoption rate. The current stock price does not justify the fundamentals from our base case, and we think it is too optimistic.”
He continues: “We expect Tesla’s share price will remain volatile and would encourage investors interested in Tesla to wait for a pullback in shares. For investors who own Tesla, it may be a good time to consider making some profits.”
The following are highlights of Goldstein’s current outlook for Tesla and its stock. The full report and more of his coverage of Tesla are available here.
Fair Value and Profit Drivers
With its 2-star rating, we believe Tesla’s stock is overvalued compared with our long-term fair value estimate of $210 per share. We use a weighted average cost of capital of just under 9%. Our equity valuation adds back nonrecourse and non-dilutive convertible debt. We believe Tesla’s 2024 deliveries will be slightly higher in 2024 than the 1.81 million in 2023. We anticipate lower average selling prices, as the company will likely have to cut prices in key markets like China, in line with peers. We forecast automotive gross margins will be just under 20% in 2024, slightly above 2023 results.
Find more of Seth Goldstein’s analysis of Tesla’s fair value estimate here.
Economic Moat
We award Tesla a narrow moat based on its intangible assets and cost advantage. The company’s strong brand cachet as a luxury automaker commands premium pricing, while its EV manufacturing expertise lets it make its vehicles more cheaply than competitors.
Tesla will face increasing competition in the coming years. Automakers plan to electrify their fleets by adding EV versions of existing vehicles and creating new platforms. However, we see EVs becoming a greater proportion of auto sales, growing to 30% by 2030, up from 3% in 2020, which will expand the market as they rapidly take share from internal combustion engine vehicles. As new models are introduced, Tesla’s technological advantage and the strength of its brand will remain intact, letting it continue to charge premium prices for its EVs.
Find more of Seth Goldstein’s analysis of Tesla’s economic moat here.
Risk and Uncertainty
We assign Tesla a Very High Uncertainty Rating, as we see a wide range of potential outcomes for the company. The automotive market is highly cyclical and subject to sharp demand declines based on economic conditions. As the EV market leader, Tesla is vulnerable to growing competition from traditional automakers and new entrants. As new lower-priced EVs enter the market, the firm may be forced to continue to cut prices, reducing its industry-leading profits. With more EV choices, consumers may view Tesla less favorably.
The firm is investing heavily in capacity expansions that carry the risk of delays and cost overruns. The company is also investing in R&D to maintain its technological advantage and generate software-based revenue, with no guarantee these investments will bear fruit. Tesla’s CEO effectively owns a little more than 20% of its stock and uses it as collateral for personal loans, which raises the risk of a large sale to repay debt.
Find more of Seth Goldstein’s analysis of Tesla’s risk and uncertainty here.
TSLA Bulls Say
• Tesla could disrupt the automotive and power generation industries with its technology for EVs, AVs, batteries, and solar generation systems.
• Tesla will see higher profit margins as it reduces unit production costs over the next several years.
• Tesla’s full self-driving software should generate growing profits in the coming years as the technology continues to improve, leading to increased adoption by Tesla drivers and licensing from other auto manufacturers.
TSLA Bears Say
• Traditional automakers and new entrants are investing heavily in EV development, resulting in Tesla seeing a deceleration in sales growth and cutting prices due to increased competition, eroding profit margins.
• Tesla’s reliance on batteries made in China for its lower-price Model 3 vehicles will hurt sales as these autos will not qualify for US subsidies.
• Solar panel and battery prices will decline faster than Tesla can reduce costs, resulting in little to no profits for the energy generation and storage business.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
