Tesla Upgraded by Morningstar

UPDATED JULY 2021: The increased fair value estimate for Tesla comes after Q2 results confirm ability to increase profitability through cost reductions and scale

30 June, 2021 | 9:48AM
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Upbeat second quarter earnings results from Tesla (TSLA) have prompted Morningstar analysts to upgrade its fair value estimate to $570 a share. Analysts previously upgraded Tesla's fair value estimate in June from $354 to $550. 

Our key takeaway from Tesla's second-quarter earnings was the company's ability to improve profitability through cost reductions and scale. Automotive gross profit margin excluding the sale of regulatory credits was 25.8%, up 710 basis points year on year from the 18.7% margin generated in the prior-year quarter. We had assumed Tesla would expand margins over the long term, largely due to cheaper manufacturing costs, including lower battery costs. With our long-term outlook intact, we have increased our near-term forecast to account for higher profitability. Having updated our model to reflect these changes, we raise our Tesla fair value estimate to $570 per share from $550. Our narrow moat rating is unchanged. At current prices, we view Tesla shares as slightly overvalued, with the very high uncertainty stock trading in 3-star territory, but over 15% above our fair value estimate.

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