Should I Buy Tesla Shares Post-Earnings?

Management’s
commentary
in
the
earnings
release
and
subsequent
chaotic
call
signalled
a
strategic
shift
away
from
cutting
prices
in
order
to
grow
deliveries.
Instead,
Tesla
will
focus
on
further
unit
cost
reductions
as
the
company
looks
to
improve
per-unit
profitability.
This
means
the
company
will
likely
see
slower
growth
in
the
near
term.

As
Tesla
is
a
high-growth
stock,
entering
a
phase
of
slower
growth
may
lead
to
its
shares
falling
out
of
favour.
That
said,
the
firm
is
setting
itself
up
for
longer-term
growth
through
the
development
of
the
new
affordable
sport
utility
vehicle.
This
vehicle
will
grow
deliveries,
while
the
unit
cost
reductions
should
boost
long-term
profit
margins.

Shares
trade
just
below
our
$200
(£157.64)
per
share
Fair
Value
Estimate,
so
we
say
investors
might
wish
to
wait
for
a
larger
margin
of
safety
before
considering
an
entry
point.

Given
Tesla
is
a
high-growth
stock
entering
a
lower-growth
phase,
if
the
stock
falls
due
to
the
market
assuming
Tesla’s
growth
story
is
broken,
shares
may
offer
a
compelling
valuation
in
the
future.

Tesla
Shares:
A
Fair
Value
Estimate

With
its
3-star
rating,
we
believe
Tesla’s
shares
are
fairly
valued
compared
to
our
long-term
fair
value
estimate.

In
2024,
we
forecast
Tesla
will
see
a
far
slower
growth
rate,
with
deliveries
increasing
just
10%
to
a
little
under
2
million,
from
a
little
over
1.8
million
in
2023.
We
forecast
lower
average
selling
prices,
as
it
will
likely
have
to
cut
prices
in
key
markets
like
China.
We
forecast
automotive
gross
margins
will
be
18%
in
2024,
in
line
with
2023
results.

In
the
longer
term,
we
assume
Tesla
will
deliver
a
little
over
five
million
vehicles
per
year
in
2030.
This
includes
fleet
sales,
an
expanding
opportunity
for
the
firm.
Our
forecast
is
well
below
management’s
aspirational
goal
of
selling
20
million
vehicles
by
the
end
of
this
decade,
but
nearly
three
times
the
1.81
million
vehicles
delivered
in
2023.

We
think
Tesla
will
be
successful
in
continuing
to
reduce
its
manufacturing
costs
on
a
per-vehicle
basis.
We
forecast
segment
gross
margins
will
recover
to
the
mid-20%
range
by
the
end
of
the
decade –
well
above
the
19%
generated
in
2023
but
below
the
29%
margin
achieved
in
2022.

Read
more
about
Morningstar’s
Fair
Value
Estimate for
Tesla
shares

Tesla
Shares
Get
‘Uncertain’
Moat
Rating

We
award
Tesla
a
‘Narrow’
Economic
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
vehicles
more
cheaply
than
its
competitors.

We
think
Tesla’s
combination
of
intangible
assets
and
cost
advantage
will
persist
and
allow
the
firm
to
generate
excess
returns
on
capital.
We
see
the
potential
for
the
firm
to
outearn
its
cost
of
capital
over
at
least
the
next
20
years,
which
is
the
measurement
we
use
for
a
Wide
Moat
Rating.

However,
the
second
10-year
period
carries
significant
uncertainty
for
both
Tesla
and
the
broader
automotive
industry,
given
the
rapid
advancement
of
autonomous
vehicle
technologies
that
could
transform
how
consumers
use
vehicles.
As
such,
we
view
a
Narrow 
Moat,
which
assumes
a
10-year
excess
return
duration,
as
more
appropriate.

Read
more
about
Tesla’s
Morningstar
Economic
Moat
Rating

Risk
and
Uncertainty
for
Tesla
Shares

We
assign
Tesla
a
Very
High
Morningstar
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
subject
to
growing
competition
from
traditional
automakers
and
new
entrants.
As
new
lower-priced
EVs
enter
the
market,
Tesla
may
be
forced
to
continue
to
cut
prices,
reducing
the
firm’s
industry-leading
profits.
With
more
EV
choices,
consumers
may
view
Tesla
less
favourably.

The
firm
is
investing
heavily
in
capacity
expansions
that
carry
the
risk
of
delays
and
cost
overruns.
But
it
is
also
investing
in
research
and
development
in
an
attempt
to
maintain
its
technological
advantage
and
generate
software-based
revenue
with
no
guarantee
these
investments
will
bear
fruit.
Chief
executive
Elon
Musk
owns
just
over
20%
of
the
company’s
stock
and
uses
it
as
collateral
for
personal
loans,
which
raises
the
risk
of
a
large
sale
to
repay
debt.

Tesla
also
faces
environmental,
social,
and
governance
risks.
As
a
car
manufacturer,
Tesla
is
subject
to
potential
product
defects
that
could
result
in
recalls,
including
its
autonomous
driving
software.
We
see
a
moderate
impact
should
this
occur.
Another
risk
involves
staff
retention.
If
Tesla
is
unable
to
retain
key
employees,
including
Musk,
its
favourable
brand
image
could
decline.
Should
the
company
not
be
able
to
retain
production
line
employees,
it
could
see
delays.
We
see
a
low
probability
but
moderate
materiality
for
both.

Read
more
about
Tesla’s
risk
and
uncertainty

Should
I
buy
Tesla
Competitor
Rivian?
Read
more
here

TSLA
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
  the
  firm
  maintain
  its
  market-leader
  status
  as
  EV
  adoption
  increases.

TSLA
Bears
Say

• Traditional
  car
  companies
  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
  cars
  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.

Key
Morningstar
Metrics
for
Tesla

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