Editor’s Note:
This analysis was originally published as a stock note by Morningstar Equity Research.
Reuters reported that Tesla plans to delay the launch of its lower-cost vehicle from mid-2025 to between the third quarter and early 2026. The shares were down 4% in April 21 premarket trading.
Why it matters: Tesla deliveries fell in 2024 and were down 13% year over year in the first quarter. In our view, Tesla needs to launch its new affordable vehicle in order to increase deliveries. We think Tesla’s current product lineup is near full market saturation in the luxury auto segment.
Lower deliveries will also reduce Tesla’s total addressable market for its ancillary products and services, which include autonomous driving subscription software, charging, and insurance in a select number of US states.
The bottom line: We maintain our USD 250 fair value estimate for narrow-moat Tesla. We want to hear management’s updated plan on the April 22 earnings call before updating our forecast. Our current outlook assumes a little over 1% of 2025 deliveries from the affordable vehicle.
We view Tesla shares as fairly valued currently, trading slightly below our fair value estimate but in 3-star territory. Accordingly, we would wait for the stock to offer a larger margin of safety before recommending an entry point.
Long view: The affordable vehicle delay affects 2025 and 2026 deliveries. However, we see no impact on our long-term outlook as the vehicle will still be a part of Tesla’s product lineup. We expect the new vehicle to eventually generate the majority of Tesla’s total deliveries.
Coming up: Another new product is Tesla’s robotaxi service, which is set to begin testing in June. We hope to hear an update from management on the earnings call on the autonomous driving software progress and the testing plans. Tesla’s robotaxi accounts for USD 65 of our USD 250 fair value estimate.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.