Morningstar

Tesla: Twitter Overhang on Shares Dissipating as Musk Names New Twitter CEO

Maintaining $215 fair value estimate on Tesla stock; shares undervalued by roughly 20%.

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Tesla Stock at a Glance

Tesla Stock Update

Our outlook for Tesla is unchanged after CEO Elon Musk, who is also the CEO of Twitter after acquiring the company late last year, announced that he hired a new CEO to lead Twitter. Accordingly, we maintain our $215 per share fair value estimate and narrow moat rating for Tesla.

At current prices, we view Tesla shares as undervalued with the stock trading in 4-star territory and roughly 20% below our fair value estimate.

For Tesla investors, Musk’s purchase of Twitter followed by him becoming its CEO has been an overhang on the stock with two key risks.

First, Musk sold Tesla shares multiple times last year, with at least some of the proceeds being used to help finance the purchase of Twitter to help ensure Twitter had enough cash to maintain operations. In March, Musk said Twitter could be break even on a cash flow basis in the second quarter of 2023. If Twitter is able to generate positive cash flow, this reduces the risk that Musk would have to sell additional Tesla shares. Second, we think investors worried that Musk being CEO of Twitter would cause him to lose focus on Tesla. Assuming the new CEO starts at Twitter according to Musk’s timeline, this overhang on Tesla’s stock would be removed.

With the Twitter overhang on Tesla somewhat dissipating, we think the market will focus on Tesla’s ability to grow volumes and restore profits.

Tesla’s price cuts helped the company drive record deliveries but weighed on profits, with automotive gross margins falling to 21% in the first quarter from 33% in the first quarter of 2022. We expect Tesla’s automotive gross profits will remain in the low-20% range in the near term but forecast a long-term expansion back to the 29% average of the past two years by 2030 as Tesla works to implement the cost-reduction plans it laid out at its investor day in March.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Seth Goldstein, CFA

Strategist
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Seth Goldstein, CFA, is a strategist, AM Resources, for Morningstar*. He covers agriculture, chemicals, lithium, and ingredients companies in the basic materials sector. Goldstein is also the chair of Morningstar's electric vehicle committee and is a member of Morningstar’s Economic Moat committee.

Before joining Morningstar in 2016, Goldstein was a senior financial analyst for Oasis Financial, and a financial analyst for Berkshire Hathaway Energy, and a field operations supervisor for the U.S. Census Bureau. Prior to assuming the equity analyst role in 2017, Goldstein was an associate equity analyst covering the basic-materials sector. His previous financial analyst roles largely focused on mergers & acquisitions valuation.

Goldstein holds a bachelor's degree in journalism from Ohio University’s Scripps School of Journalism. He also holds a Master of Business Administration, with a concentration in finance, from the University of Iowa’s Tippie College of Business. He also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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