Tesla earnings: Shares fall as market focuses on uncertainty in near term
Are shares overpriced despite the fall?
Mentioned: Tesla Inc (TSLA)
Key Morningstar metrics for Tesla
- Fair Value Estimate: $300
- Morningstar Rating: ★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Very High
What we thought of Tesla’s earnings
Tesla TSLA‘s third-quarter earnings reflected sequential improvement driven by record auto deliveries and energy storage deployments. Yet, Tesla shares were down on Oct. 22 in after-hours trading as the market reacted to the near-term uncertainty for deliveries.
Why it matters: Selling electric vehicles is currently Tesla’s largest business. The expiration of the US EV tax credit in September is likely to weigh on EV sales over the next year. As Tesla is the US EV sales leader, Tesla will likely see lower near-term deliveries.
- The market may also be reacting to management’s delay in the outlook for the full launch of its robotaxi product, which was initially set for 2026. Tesla is expanding its robotaxi testing to more cities. But the earnings call confirmed our view that a full launch would likely be delayed.
- Tesla is also facing increased competition in its energy generation and storage business. We think this will lead to a slower growth rate over time as more battery producers sell to the utility-scale battery market.
The bottom line: We raise our fair value estimate for narrow-moat Tesla to $300 from $250. The primary drivers are a higher robotaxi valuation and increased long-term adoption of Tesla’s autonomous driving software.
- During the earnings call, management said it would remove Tesla employees in its robotaxi vehicles starting in its Austin, Texas, testing area. This gives us confidence that the software is improving to the point where robotaxis and subscriptions will generate improved long-term free cash flow.
- At current prices, we view Tesla shares as overvalued, with the stock trading roughly 40% above our updated fair value estimate. We recommend investors wait for a larger pullback and for the stock to offer a margin of safety before considering an entry point.
