Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The United States and China agreed to temporary tariff cuts for the next 90 days while they negotiate a larger trade deal. The US will cut tariffs on Chinese imports to 30% from 145%, while China will cut tariffs on US imports to 10% from 125%. Tesla TSLA shares were up 8% during May 12 premarket trading.
Why it matters: Tariffs can cause inflation and result in consumers purchasing fewer items. In autos, Tesla’s primary business, this includes the risk that consumers will delay or forego a purchase or trade down to a less expensive vehicle.
Lower auto sales will reduce Tesla’s total addressable market for its other products and services, which include autonomous driving software subscriptions, insurance in select US states, and charging.
The bottom line: We maintain our $250 fair value estimate for narrow-moat Tesla. At current prices, we view Tesla shares as overvalued, trading nearly 30% above our fair value estimate.
If the reduced rates remain in place, Tesla should benefit from lower tariff-related inflation. However, we continue to forecast lower deliveries in 2025. We think the current model lineup is close to market saturation.Tesla plans to begin production on a more affordable vehicle later this year, but we do not expect significant delivery volume until 2026. We think this new vehicle will ultimately generate the majority of Tesla deliveries.
Coming up: Tesla plans to begin testing its robotaxi service in Austin, Texas, in June. We do not think Tesla’s autonomous vehicle software will be ready to operate a robotaxi service by management’s timeline of 2026 but think it will be ready by 2028.
The market may be pricing in a short ramp-up from robotaxi testing to product launch and assuming that Tesla meets management’s timeline. Accordingly, any delays in the actual timeline could weigh on the shares.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
