Tesla: Stock of the Week

Is now a good time to buy Tesla stock with deliveries down?

Andrew Willis 15 April, 2024 | 4:09AM
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Key Takeaways for Tesla Stock:

  • We trimmed the fair value for Tesla (TSLA) stock in the wake of Tesla’s dwindling deliveries in the short term. The market has a stronger reaction, but investors may want a wider margin of safety before buying.
  • Beyond 2024, EVs are likely to continue rapidly taking share from combustion vehicles and we believe it may take years for competitors to catch up with Tesla on costs.
  • Tesla’s avenues of growth extend to a competitive position in energy generation and storage, and while we are well below management on vehicle deliveries, we still see numbers tripling by 2030.

 

Andrew Willis With last quarter’s deliveries down 8.5% on a year-over-year basis, we reduced our fair value estimate for Tesla stock by 2.5%. In the days following the news, Tesla shares fell quite a bit more than that – so are we entering a time to buy?

The market may have been more surprised than we were by the delivery news, and we are now seeing shares as slightly undervalued. At the same time, we’ve had to reduce our delivery forecast for 2024 from 10% growth to flat. But beyond this year... let’s put it this way: We still don’t see Tesla’s brand cachet being weakened any time soon, EVs should go from 3% of auto sales in 2020 to 30% by the end of the decade, and legacy competitors may take years to reach parity on costs.

And while legacy automakers catch up, Stock strategist Seth Goldstein sees EVs rapidly taking share from internal combustion vehicles. All while Tesla continues to reduce production costs.

Tesla Competes in Energy Generation and Storage Sector

Peers are being put to the test in sectors outside of automaking - or in Tesla’s peripheral. We expect the company’s energy generation and storage businesses to not only generate margins in line with competitors such as Enphase or SolarEdge but to generate an average of 20% annual growth over the next 10 years.

Longer-term in Tesla’s core auto segment, Goldstein assumes Tesla will deliver a little over 5 million vehicles per year by 2030, and that this includes an expanding fleet sales segment. He notes that our forecast is well below management’s aspirational goal of selling 20 million vehicles by the end of this decade. However, it is still nearly 3 times the 1.8 million vehicles delivered in 2023.

So in terms of whether now is the time to buy Tesla, we’d recommend a wider margin of safety – assuming we don’t hit any of these aspirational goals.

For Morningstar, I’m Andrew Willis

 

bulls Tesla Bulls Say

  • Tesla has the potential to 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.
  • Through the combination of Tesla’s industry-leading technology and its unique supercharger network, the company’s EVs offer the best function of any on the market, which should help Tesla maintain its market-leader status as EV adoption increases.

bears Tesla Bears Say

  • Traditional automakers and new entrants are investing heavily in EV development, which will result in Tesla seeing a deceleration in sales growth and being forced to cut 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 U.S. 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.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Tesla Inc177.46 USD1.50Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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