After Earnings, Is Tesla Stock a Buy, a Sell, or Fairly Valued?

Tesla released its second-quarter earnings report on July 23. Here’s Morningstar’s take on Tesla’s earnings and stock.

Key Morningstar Metrics for Tesla

• Fair Value Estimate: $250.00
• Morningstar Rating: ★★
• Economic Moat: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of Tesla’s Q2 Earnings

Tesla reported lower second-quarter earnings, driven by a decline in deliveries. Management did not provide deliveries guidance for the year, but it did say the affordable vehicle will enter production in the fourth quarter. Tesla shares were down 5% in after-hours trading on the results.

Why it matters: Management initially guided for deliveries growth in 2025. We interpret no guidance as a signal that management is no longer forecasting volume growth. This aligns with our expectation for deliveries to decline in 2025.

• The affordable vehicle will enter production during the fourth quarter of the year. This supports our view that the affordable vehicle will ramp up production in 2026.

The bottom line: We maintain our $250 fair value estimate for narrow-moat Tesla. At current prices, we view Tesla shares as overvalued with the stock trading in 2-star territory at a little less than 30% above our fair value estimate.

• We reduced our near-term outlook for Tesla as we forecast the company will be affected by the expiration of the US EV tax credit this year. Separately, we raised our valuation for the Optimus humanoid robot business, as Tesla is testing this new product.

Long view: Management aims to transition Tesla to an artificial intelligence software and robotics company from autos as the primary business today. We think Tesla will successfully launch its new business ventures, including robotaxis and humanoid robots.

• Tesla began testing its robotaxis earlier this month, with extra safety features that include a Tesla employee in the front passenger seat and operation limited to a geofenced area. We view this as a sign Tesla is still in the early testing stage for the autonomous driving software.
• Management maintained its view for Cybercab robotaxis to enter production in 2026. We think the software will require further testing and do not expect a full robotaxi product until 2028, with no Tesla employees in the vehicle and no geofence.

Fair Value Estimate for Tesla

With its 2-star rating, we believe Tesla’s stock is overvalued compared with our long-term fair value estimate of $250 per share. In 2025, we forecast deliveries will fall to 1.65 million versus the 1.79 million deliveries in 2024. We expect first-half deliveries will be affected by the new Model Y not being solid in all markets, especially in the beginning of the year. However, we forecast a better second half as the affordable vehicle enters production. As the company is ramping up production of the new vehicles, we expect automotive gross margins excluding credits will remain in the mid-teens, below management’s long-term goal of 20%.

Read more about Tesla’s fair value estimate.

Economic Moat Rating

We award Tesla a narrow moat, stemming from its intangible assets and cost advantage. The company’s strong brand cachet as a luxury automaker commands premium pricing, while its EV manufacturing expertise allows the company to make its vehicles cheaper than its competitors.

Tesla’s brand cachet is not likely to be impaired anytime soon as other automakers move into the battery electric vehicle space, because we expect the company to keep innovating to stay ahead of startup and established competitors. By focusing on the luxury auto market first, Tesla was able to create tremendous media publicity for the company that reaches beyond its customers. This generated strong consumer demand for its subsequent vehicles at lower price points. As other new vehicles are launched, such as the affordable SUV, we expect the company’s strong brand will continue to generate consumer demand.

Read more about Tesla’s economic moat.

Financial Strength

Tesla is in excellent financial health. Cash, cash equivalents, and investments were around $37 billion and far exceeded total debt as of June 30. Total debt was around $7 billion; however, total debt excluding vehicle and energy product financing (non-recourse debt) was less than $5 million.

Tesla’s growth going forward will be largely self-funded. With its positive free cash flow generation and large cash balance, we think Tesla should be able to easily fund its growth plans in the coming years. Historically, the company has used credit lines, convertible debt financing, and equity offerings to raise capital. However, management has stated a preference to pay down all debt over time and has essentially achieved its goal.

Read more about Tesla’s financial strength.

Risk and Uncertainty

We assign Tesla a Very High Uncertainty Rating, as we see a wide range of potential outcomes for the company. The automotive market is highly cyclical and subject to sharp demand declines based on economic conditions. As an EV market leader, Tesla is subject to growing competition from traditional automakers and new entrants. As new lower-priced EVs enter the market, Tesla may have to cut prices, reducing the firm’s industry-leading profits.

As of the last SEC filing, Tesla’s CEO owns roughly 12% of the company’s stock and uses it as collateral for personal loans, which raises the risk of a large sale to repay debt. Tesla also faces political risk related to the political activities of CEO Elon Musk, who served as an advisor to US President Donald Trump but has since made statements against Trump’s policies. Musk also campaigned for the far-right Alternative for Germany party.

Additional ESG risks include potential patent litigation, as the company relies on new technology to improve its EVs and energy storage systems. We see a low probability but moderate materiality should this occur. Tesla may also face regulatory issues in some US states due to laws that require automakers and dealers to be separate. We see a moderate probability but low materiality.

Read more about Tesla’s risk and uncertainty.

TSLA Bulls Say

• Tesla has the potential to disrupt the automotive and power generation industries with its technology for EVs, AVs, batteries, and humanoid robots.
• Tesla will see higher profit margins as it reduces unit production costs over the next several years.
• Tesla’s full self-driving software should generate growing profits in the coming years as the technology continues to improve, leading to a robotaxi service, increased adoption by Tesla drivers, and licensing from other auto manufacturers.

TSLA Bears Say

• Traditional automakers and new entrants are investing heavily in EV development, which will result in Tesla seeing a deceleration in sales growth and being forced to cut prices due to increased competition, eroding profit margins.
• Tesla’s large investment into autonomous driving software will be value destructive as the robotaxi product will face delays and competition from Waymo, who already offers a robotaxi service.
• Tesla CEO Elon Musk’s political activities will turn consumers away from buying a Tesla in key markets including the US and Europe, leading to lower sales and profits.

This article was compiled by Isela Meraz.