Morningstar

Tesla in Holding Pattern Ahead of New Model 3

We think shares remain overvalued as the firm gets ready to launch its mainstream sedan.

Securities In This Article
Tesla Inc
(TSLA)

We are not changing our fair value estimate on

We see the company’s results in a holding pattern until Model 3 sedan production begins in July. Management upheld its first-half 2017 total vehicle delivery guidance at 47,000-50,000 units, roughly 66% year-over-year growth at the midpoint of guidance, and thinks capital expenditure will be slightly over $2 billion by the time Model 3 production starts. The firm has not yet provided full-year guidance on deliveries or capital spending. We think the long-term story on what Tesla can achieve in electric cars, trucks, mobility, and energy generation and storage will ultimately determine the value of the company. We think the stock trades on momentum for option value that, if realized, is still many years away, and therefore we do not think any single quarter’s results are critical to the investment thesis.

CEO Elon Musk did give some product updates, including that the Model Y, a small crossover, will be built on a new platform from the Model 3 and be available in late 2019 or 2020. Musk is also not as keen on developing a bus as he first outlined in a July 2016 blog post, as an autonomous car ride could be cheap enough to make the bus irrelevant. Other recent product announcements are a September unveiling of the Tesla semi-truck and a pickup truck reveal in 18-24 months. We are very curious as to whether Tesla can take on the Detroit Three in pickups, as the latter has over 90% share of the full-size segment.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

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

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