Tesla: We lower our fair value estimate

you are here (“Dar Moat”) announced shipments of 405,278 and 1,313,851 for the fourth quarter and full year 2022, respectively.

2022 shipments represent 40% year-over-year growth, a lower pace than our previous forecast.

The market was expecting 430,000 deliveries during the quarter.

After updating our model to reduce near-term volumes, we lowered our estimate of Tesla’s fair value from $250 to $220 per share.

After this announcement, Tesla shares fell.

We believe the market is also reacting to Tesla producing 34,000 more vehicles than it delivered in the fourth quarter, adding to concerns that demand for the company’s vehicles is slowing.

However, fourth quarter shipments were still up 31% year-over-year, which we take as a sign that demand remains and the business can still grow.

We expect over 1.6 million vehicles to be delivered in 2023, an increase of 24%.

At the current price, we believe the stock is significantly undervalued.

Our long-term assumptions remain intact.

We expect more than 5 million vehicles by 2031 with the introduction of the Cybertruck as well as a new affordable vehicle platform.

We also believe that cost reductions will contribute to margin expansion.

Given the wide range of outcomes for Tesla, we modeled a bearish scenario with a fair value estimate of $90 per share.

This scenario assumes a long-term supply of just 2 million vehicles per year, with increased competition limiting future growth and forcing Tesla to lower prices.

We also believe that cost reductions are not materializing, leading to lower profit margins.

We also assume no value for the self-driving software business, small growth for the insurance business, and no value for Tesla’s ancillary businesses.

With the stock trading just 15% above our bearish scenario estimate, we expect the stock to rally sharply and feel that much of the bad news has already been priced in.

Tom Zhu, who was Tesla’s vice president of Greater China, has been promoted to oversee the vehicle assembly operations in the United States and sales operations in the United States and Europe, Reuters reported.

This makes Zhu Tesla the second most important leader after Elon Musk.

We believe the move makes sense as Zhu’s experience leading Tesla’s operations in China, including the expansion of Tesla’s Shanghai factory, should help ensure increased profitability for the new gigafactory.

The move makes Zhu potentially the CEO of Tesla if Elon Musk retires.

© Morningstar, 2023 – The information contained herein is for educational purposes and is provided for informational purposes ONLY. It is not intended to be, and should not be construed as, an invitation or inducement to buy or sell listed securities. Any comment is the opinion of its author and should not be taken as an individual recommendation. The information in this document should not be the only source for making an investment decision. Be sure to consult a financial advisor or financial professional before making any investment decisions.

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