Key Morningstar Metrics for Tesla
- : USD 450Fair Value Estimate
- : ★★★Morningstar Rating
- : NarrowMorningstar Economic Moat Rating
- : Very HighMorningstar Uncertainty Rating
What We Thought of Tesla’s Earnings
Tesla TSLA generated mixed second-quarter results as higher deliveries led to revenue growth, but increased expenses weighed on profits.
Why it matters: Tesla’s adjusted earnings per share came in below FactSet consensus estimates. Shares were down 4% in after-hours trading on this news and management’s outlook for capital expenditures to grow over the next three years.
- The increased capital expenditures are coming from Tesla building new factories to expand its vehicle and battery production and increased artificial intelligence compute, which is required to run Tesla’s autonomous driving and humanoid robot AI software.
- We view the heavy expenditures as Tesla laying the foundation for its real-world AI—namely autonomous vehicles and humanoid robots. While these new ventures are unlikely to generate meaningful results in the near term, we see strong long-term growth for both products.
The bottom line: We maintain our USD 450 fair value estimate for narrow-moat Tesla. We had already assumed capital expenditure would exceed USD 25 billion over the next three years and grow from there. So, management guidance for higher capex spending was already largely accounted for in our valuation.
- We think Tesla will be successful in developing autonomous driving software that it will monetize through its robotaxi ride-hailing service, its full self-driving software sold to Tesla owners, and an autonomous heavy trucking operation using Tesla’s semi-trucks.
- At current prices, we view Tesla shares as undervalued, with the stock trading roughly 20% below our fair value estimate. Tesla shares are down nearly 30% from their 52-week high. For long-term investors, we view the pullback as a good opportunity.
Big picture: Tesla is investing heavily today in order to become a leader in autonomous vehicles and humanoid robots in the future. While the market is reacting to the near-term negative free cash flow, we see strong long-term growth from these new product developments.
