Tesla: Luxury Sports Car Launch Provides New Halo Vehicle; Maintaining Valuation

Key Morningstar Metrics for Tesla

• Fair Value Estimate
  : $450
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Very High

Tesla Stock Update

Tesla TSLA announced it will have a release event on Oct. 1 for its new luxury sports car, the Tesla Roadster.

Why it matters: Tesla does not currently have a halo car, or high-performance luxury vehicle designed to showcase an automaker’s best engineering and technology. The Roadster will be Tesla’s new halo car.

• Tesla ended production of the Model S and Model X vehicles, which were its halo cars, earlier this year in order to begin manufacturing humanoid robots.
• The Roadster, which was the name of Tesla’s first model produced from 2008-12, has been discussed by Tesla since 2017, but has faced multiple delays. Tesla claims it will be the world’s quickest vehicle, setting records for acceleration, range, and performance.

The bottom line: We maintain our $450 fair value estimate for narrow-moat Tesla. Our forecast already assumed the Roadster enters production. We see small unit volumes of just around 2,000 cars sold per year for the Roadster, versus our multimillion total deliveries forecast for Tesla companywide.

• At current prices, we view Tesla shares as slightly undervalued, with the stock trading around 20% below our fair value estimate. We think the market is reacting to management’s outlook for negative free cash flow as Tesla invests heavily in its autonomous driving and humanoid robot products.
• Tesla’s investments in these real-world artificial intelligence products are necessary for the company to be able to transition from primarily selling cars and batteries to autonomous driving software and humanoid robots over the long term. We see a reasonable margin of safety at current prices.