From Morningstar:

Tesla’s 2023 Q4 earnings report exceeded expectations, showing an uptick in profit and operating margins. The company plans to shift its focus from cutting prices to growing profitability. This strategic shift indicates slower growth in the near future, but long-term profitability boosts. Morningstar gives a $200 per share Fair Value Estimate, advising caution before entering.

Morningstar estimates a drop in growth rate by 2024, predicting an approximate 10% rise in deliveries. Long-term forecasts indicate Tesla delivering five million vehicles by 2030, but still lower than management’s goal of 20 million. The company is anticipated to maintain cost reductions, with mid-20% range gross margins by 2030.

Tesla holds a ‘Narrow’ Economic Moat, based on its intangible assets and cost advantage, leading to long-term excess returns. However, due to industry advances and uncertain market conditions, a ‘Narrow Moat’ with a 10-year duration is rated more appropriate for the company’s future.

A Very High Morningstar Uncertainty Rating is assigned to Tesla, indicating a wide range of outcomes. The company faces risks from the cyclical automotive market, increased competition in the EV market, and environmental and social risks. Moreover, Elon Musk’s use of stock as loan collateral raises concerns over the potential risk.

Bullish investors are confident in Tesla’s potential to revolutionize the automotive and energy industries with its technology and predict increased profit margins. Bears, however, forecast a deceleration in sales growth due to increased competition, a reliance on Chinese-made batteries, and plateauing profit margins.

Tesla’s Easy to use supercharger network and high-quality EVs set it apart, ensuring market leadership. On the contrary, competition from other companies investing in EVs is expected to impact Tesla’s profit margins and growth. With increasing EV choices, Tesla’s market position may weaken.

Tesla’s success is dependent on reduced unit costs and long-term profitability through cost reductions. The company’s strategic shift from cutting prices to growing profitability could lead to a slower growth phase in the near future, prior to long-term growth expectations.

Management’s recent announcements indicate a shift towards reducing unit production costs rather than focusing on growing deliveries and are expected to bolster long-term profit margins. Shares’ trading just below $200 Fair Value Estimate indicate a need for a larger margin of safety.

Morningstar’s Fair Value Estimate for Tesla’s shares is a 3-star rating from the company. The forecast for 2024 indicates slower growth with 10% increase in deliveries and predicted lower average selling prices with margins of 18%. The firm predicts Tesla will deliver a little over 5 million vehicles per year by 2030, however, this is well below Tesla’s objective of 20 million vehicles delivered by 2030.



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