Tesla's Cheaper Models Excite Investors, But Profits Fall

Investors focus on quicker rollout of cheaper models next year in latest earnings report for the EV stock.

Seth Goldstein, CFA 24 April, 2024 | 1:09PM
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Tesla (TSLA) is the first of the Magnificent Seven stocks to report quarterly earnings. Here's what our analyst thought of the company's update, which showed a fall in profits but some more news on affordable models, which are due next year.

Morningstar Metrics for Tesla Stock

• Fair Value Estimate: US$200
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

We’ve raised our fair value estimate for narrow-moat Tesla (TSLA) to US$200 per share from US$195 following first-quarter earnings, due to an improved near-term outlook. Shares were up over 10% in after-hours trading as the market reacted positively to management’s outlook. At current prices, we view Tesla as undervalued, with the stock trading in 4-star territory.

Affordable Tesla Models Imminent

We had four key takeaways. First, the affordable vehicle is still on track for first deliveries by the end of 2025. Tesla’s affordable vehicles are a catalyst for shares. Affordable vehicles should eventually generate a majority of its total deliveries. We continue to forecast that Tesla delivers around 5 million vehicles by 2030.

Second, the full self-driving subscription software, or FSD, is seeing stronger adoption. We estimate over 10% of the eligible fleet has adopted subscription software, which is above our prior forecast. As such, we’ve updated our assumptions for a higher adoption rate. In our view, FSD will be a driver of consumers choosing Tesla over other brands, which supports our outlook for deliveries growth over the rest of the decade.

Third, we raised our energy storage volume growth forecast. Energy storage volumes increased at just 4% year over year in the first quarter. However, as much of the business is of large-scale batteries built on longer-term projects, volumes can be volatile from quarter to quarter, as they are recognised upon the completion of project milestones. Management guided to at least 75% year-on-year volume growth, which we think is achievable, given that most of these volumes are likely already contracted.

Finally, we slightly raised our 2024 deliveries forecast, versus our prior forecast for no growth. Our improved outlook is due to Tesla’s recent price cuts, so we also slightly reduced our near-term automotive gross margin forecast. We think Tesla could cut prices further as management aims to pass along the majority of cost savings to customers to drive demand.

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Securities Mentioned in Article

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

About Author

Seth Goldstein, CFA

Seth Goldstein, CFA  Seth Goldstein, CFA, is an equity analyst for Morningstar

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