Tesla TSLA shares were up 4% in after-hours trading as management reported progress in its autonomous driving software and maintained the timeline for launching more affordable vehicles later this year.
Why it matters: Tesla aims to transform the firm from primarily producing autos to becoming a real-world artificial intelligence provider. Tesla also aims to develop fully autonomous driving software that will enable a robotaxi service.
Tesla is a high-growth stock, having become the first profitable electric vehicle producer globally. With management’s goal of a robotaxi service, shares tend to be volatile and move based on management’s progress toward the successful development of autonomous driving software.With the first robotaxi launch planned in June 2025, Tesla is making meaningful progress toward its long-term autonomous driving goals.
The bottom line: We raise our fair value estimate to $250 from $210. The increase is due to our assumptions for higher autonomous driving software adoption and faster growth in the energy generation and storage business.
At current prices, we view Tesla shares as overvalued with the stock trading around 60% above our updated fair value estimate. We recommend investors wait for a pullback in shares before considering an entry point.
Big picture: We credit the progress management has made in improving its autonomous driving software. However, autos remain the firm’s core business. Automotive gross profit margins excluding credits fell sequentially to the midteens, from 20% in the third quarter.
We think Tesla will need to keep reducing prices in key markets such as China where it will face increased competition. This will keep margins below management’s 20% goal over the next several years.While we see a return to delivery growth in 2025, we expect it will largely come from the new more affordable vehicle version using the Model Y platform. As production of this vehicle ramps up, we expect it will weigh on profits in 2025.
In energy generation and storage, Tesla achieved full production capacity at its China megapack facility, an annual rate of 40 gigawatt-hours of batteries. Management confirmed its timeline for the megapack facility to enter production in early 2025. This should enable high-double-digit growth in deployments during 2025, following our outlook for deployments to more than double in 2024 versus 2023.
Tesla Stock vs. Morningstar Fair Value Estimate
Source: Morningstar Direct. Latest price as of 8:00 AM ET.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
