Tesla’s First-Quarter Deliveries Put it on Track to Meet Forecasts

Tesla Stock at a Glance

• Current Morningstar Fair Value Estimate: $225
• Tesla Stock Star Rating: 3 Stars
• Economic Moat Rating: Narrow
• Moat Trend Rating: Stable

Tesla Stock Update

Tesla TSLA announced first-quarter deliveries of 422,875 vehicles, which puts the firm in line to meet our 2023 total deliveries forecast of 1.81 million vehicles. Accordingly, we see no reason to change our $225 per share fair value estimate for Tesla. Our narrow-moat rating is also unchanged.

At current prices, we view Tesla shares as fairly valued with the stock trading in 3-star territory. While shares are a little more than 10% below our fair value estimate, we recommend investors wait for a larger pullback that would offer a greater margin of safety before considering an entry point.

Tesla’s first-quarter deliveries were an all-time high for the company, up 36% year on year versus the prior-year quarter. Some of the growth was likely driven by the price cuts implemented at the start of the year. While the lower prices had the desired effect of growing demand, they will reduce the per-vehicle profitability, weighing on margins, partially offset by cost reductions from the continued ramp-up of the two new factories. We expect Tesla’s profit margins will contract in 2023. We forecast companywide operating margins will shrink 260 basis points from 16.8% in 2022 to 14.2%.

When Tesla reports financial results later this month, we will look for management’s plan in response to the U.S. Treasury Department’s guidance on the Inflation Reduction Act. Based on the updated results, the least expensive version of the Model 3 will likely be ineligible for the $7,500 tax credit as the battery is produced in China. This has the potential to weigh on Tesla’s sales growth in the U.S. as the lack of a credit may turn some consumers away. This will likely keep Tesla’s sales volumes toward the lower end of management’s 2023 guidance for 1.8-2 million vehicles.