Tesla earnings, released after the market close on Wednesday night, have sent shares tumbling in Thursday’s trading session
Our key takeaway from the Tesla (TSLA) earnings call was the firm’s strategic shift to the development and ramp-up of the new affordable sport utility vehicle, while focusing on cost cuts for its existing vehicles. This marks a change from the 2023 strategy, which was to cut prices to generate strong volume growth. We updated our forecast for lower near-term deliveries growth and lower near-term automotive gross profit margins. As a result, we reduce our fair value estimate on Tesla stock to $200 per share from $210. We maintain our narrow-moat rating.
Tesla shares were down on the earnings. We think the market reacted negatively to management’s outlook that Tesla will enter a period of lower growth in 2024. At current prices, we view shares as fairly valued, with Tesla stock trading a little below our updated fair value estimate but in 3-star territory. Accordingly, we recommend investors wait for the stock to offer a solid margin of safety before considering an entry point.
Tesla Deliveries Expected to Slow
This strategic shift will create different near- and long-term dynamics for the company’s deliveries growth. In the near term, we expect deliveries to grow at just 10% and 6% in 2024 and 2025, respectively. This is far below the 50%-plus annual growth that Tesla has generated over the past decade. However, as the company launches its affordable vehicle by the end of 2025, we expect Tesla will resume double-digit deliveries growth in 2026. As the affordable vehicle surpasses the Model 3/Y platform in deliveries, we forecast Tesla will deliver a little over 5 million vehicles by 2030.
We expect different near- and long-term profit margins as well. While Tesla is developing its affordable vehicle and ramping up Cybertruck production, we expect the company will see a period of lower automotive gross margins, in line with the 19% generated in 2023. Over the long term, we continue to forecast margin expansion as Tesla begins to sell its affordable vehicles and benefits from its cost-reduction initiative.
