Morningstar’s Report
Tesla Inc. (TSLA) has been the center of attention in the automotive industry due to its earnings announcement.
On July 20th, 2023, Morningstar (Analyst Rank #99 of #342) published its latest analysis of Tesla, which includes various key metrics and assessments. Let’s delve into the analysis and understand its implications for Tesla’s future prospects.
Fair Value Estimate
Morningstar’s fair value estimate for Tesla on July 19, 2023, stands at $215 per share. This estimate represents the intrinsic value of the company’s stock based on Morningstar’s proprietary valuation model, which takes into account several factors such as growth prospects, profitability, and risk.
Tesla’s economic moat, a measure of its competitive advantage, is rated as “narrow.” A narrow moat suggests that the company possesses certain advantages that protect its market position, but these advantages are not insurmountable. This rating indicates that Tesla faces competition in the electric vehicle industry, and its position requires constant innovation and execution.
Market Reaction To Twitter Overhang
One significant aspect that has affected Tesla’s stock performance is the Twitter overhang due to CEO Elon Musk’s acquisition of Twitter and taking on the role of CEO there as well. Investors were concerned that this dual role might impact Musk’s focus on Tesla. However, the recent announcement of hiring a new CEO for Twitter has dissipated this overhang, providing investors with more confidence in Tesla’s future prospects.
Price Cuts Impact on Profit Margins:
Tesla’s decision to cut prices to boost demand has resulted in record deliveries, but it has also weighed on the company’s profit margins. Automotive gross margins fell to 21% in the first quarter of 2023 from 33% in the same quarter of 2022. Morningstar predicts that Tesla’s automotive gross profits will remain in the low-20% range in the near term but forecasts a long-term expansion back to the 29% average of the past two years by 2030. This expected expansion is based on Tesla’s plans to implement cost-reduction strategies presented at its investor day in March.
Delivery Outlook and Long-Term Growth:
Tesla’s delivery outlook is a critical factor in determining its future success. Morningstar adjusted its delivery forecast for 2023 to 1.8 million from 1.6 million vehicles. This increase is attributed to strong demand growth, even in an economic slowdown, with Tesla’s Model 3 and Model Y vehicles qualifying for the Inflation Reduction Act tax credit. However, Tesla’s price cuts and expected raw materials inflation are likely to impact automotive gross profit margins in 2023.
Morningstar’s Long-Term Outlook
Despite near-term challenges, Morningstar maintains a positive long-term outlook for Tesla. The company’s focus on scaling operations, reducing costs, and expanding its energy generation and storage business are seen as factors that will drive higher long-term free cash flow generation.
At current prices, Morningstar views Tesla’s shares as undervalued, offering a potential buying opportunity for investors who believe in the company’s long-term growth potential. It is essential to note that investing in individual stocks carries risks, and investors should conduct their own due diligence before making any investment decisions.
Morningstar’s analysis of Tesla provides valuable insights into the company’s current performance and future prospects. Investors should closely monitor Tesla’s progress and consider the risks and opportunities presented by the electric vehicle industry as they make their investment decisions.
STA Research (StockTargetAdvisor.com) is a independent Investment Research company that specializes in stock forecasting and analysis with integrated AI, based on our platform stocktargetadvisor.com, EST 2007.
