Tesla: Record Deliveries Keep Company on Track for Solid Growth in 2023

Tesla Stock at a Glance

• Fair Value Estimate: $215
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

Tesla Stock Update

During the second quarter, Tesla TSLA delivered 466,140 vehicles—a new record high that’s more than 80% above the prior-year quarter. This puts the company on track to meet our annual deliveries forecast of just over 1.8 million vehicles for 2023, which is a little less than 40% growth for the year

We maintain our fair value estimate of $215 per share and our narrow moat rating for Tesla. At their current prices, we view the company’s shares as slightly overvalued (trading a little more than 20% above our fair value estimate) but in 3-star territory. We accordingly recommend that investors wait for a pullback in shares, and for the stock to offer a margin of safety and trade below our fair value estimate, before considering an entry point.

Watching the Impact of Tesla’s Price Cut

Tesla plans to release its full second-quarter results on July 19. We will be focusing on the automotive segment’s gross profit margin. During the quarter, Tesla implemented a price cut to drive volume growth, as it did in the prior two quarters. Because of those earlier cuts, the company’s automotive gross profit margin fell to a multiyear low in the first quarter. However, lower prices should be at least partially offset by lower unit production costs resulting from continued production ramp-up at factories in Austin, Texas, and Berlin, Germany, as well as falling costs of raw materials.

We forecast 2023 automotive gross profit margins will reach the low 20% range before improving back to 29% by 2030, which was the 2021-22 average. While the margin decline was driven by price cuts, we expect much of the margin improvement will come from lower unit production costs.

Tesla aims to reduce unit production costs by 50%, as the company outlined during its investor day in March. This should drive a margin improvement, particularly in the Model 3 and Y vehicles, partially offset by the eventual sale of lower-priced vehicles, which will likely generate lower profit margins.