Tesla: Delivery Came in Below Market Expectations

Morningstar key metrics for Tesla

Tesla update

Tesla reported third-quarter shipments of more than 435,000 vehicles, down from about 466,000 in the second quarter. Management attributed the low levels to a planned period of factory upgrades, which coincided with the company’s production decline in the quarter by more than 430,000 vehicles.

Through the first three quarters of 2023, Tesla has delivered more than 1.3 million vehicles, and we think the company remains on track to meet our 2023 forecast of 1.8 million vehicles. Therefore, we see no reason to change our narrow moat rating or our $215 per share value estimate for Tesla.

Tesla shares were slightly lower on the news of the delivery. At current prices, we view the stock as overvalued, with the stock trading in the 3-star zone, but more than 15% above our value estimate. Therefore, we recommend that investors wait for a big discount and for the stock to provide a margin of safety before recommending an entry point.

In its press release, Tesla emphasized the management goal of 1.8 million deliveries for 2023, which means around 476,000 deliveries in the fourth quarter. We think the company will be able to increase its factories to produce this level. To ensure that there is enough demand to meet higher production, we think Tesla will continue to lower prices or offer other incentives such as free charging.

Looking at third quarter results, we expect Tesla’s profit margins to be sequentially lower, reflecting lower pricing and production, partially offset by lower raw material costs. Based on our current forecast, we expect interest rates to decline in the second half of the year. We expect a slight improvement in 2024 as higher production costs and lower raw material costs will be offset by lower prices.