VALUATION HIGHLIGHTS

1. Automotive constitutes 94% of the Trefis price estimate for Tesla Motors's stock.

WHAT HAS CHANGED?

Tesla's Q2 2023 Earnings

Tesla's Q2 2023 results were better than expected. While revenues rose by 47% versus last year to $24.9 billion driven by expanding deliveries, adjusted earnings stood at $0.91 per share, compared to $0.76 in the year-ago period. That said, Tesla's margins have been facing pressure, with operating margins coming in at 9.6% down from 14.6% in the year-ago period due to lower average selling prices.

Demand is picking up following price cuts

Tesla carried out relatively large price cuts on the Model 3 sedan and Model Y SUV in early 2023 (almost 20% price reduction). This appears to be helping drive demand for Tesla vehicles. For example, Tesla said that the rate at which orders were coming in as of January was roughly double its production rate. The company also indicated that it could deliver two million cars in 2023, up from around 1.3 million in 2022, provided that there are no external disruptions.

2022 Stock Split

Tesla completed a 3-for-1 stock split on August 25, 2022.

BUSINESS SUMMARY

Tesla is focused on designing, manufacturing, and selling electric vehicles and related technologies. The company's current model line-up includes the Model S luxury sedan, the Model X luxury SUV, the Model 3 sedan, and the Model Y compact SUV. Tesla also sells renewable energy products such as solar panels and battery technology. The company's upcoming products (likely due in 2023 or later) include the Cyber Truck electric pick-up, the Semi truck, and the second-generation Roadster sports car.

SOURCES OF VALUE

Most of Tesla's value comes from its Mass Market vehicles, such as its Model 3 and Model Y.

Future model launches

Tesla currently offers four vehicles: Model 3, Model Y, Model S, and Model X. The company's upcoming vehicles include the Cybertruck pickup truck, which will likely go on sale sometime in 2023. Tesla is expected to take its first step away from the luxury passenger vehicle market into the commercial space, with plans to launch an all-electric semi-truck.

Transition to EVs should go quicker than expected

President Joe Biden committed that the United States would reduce its greenhouse gas emissions by 50% to 52% below its 2005 emissions levels by 2030. The U.S. has also pledged to achieve carbon neutrality by 2050. We are seeing similar commitments from other developed countries across the world. This means that the process of decarbonizing the transportation space will have to speed up, with gasoline-powered vehicles being replaced with cleaner EVs and hybrids. This should bode well for Tesla, the market leader in the premium EV space.

KEY TRENDS

Falling battery costs to speed up the adoption of electric cars

According to Bloomberg New Energy Finance (BNEF), the industry average battery cost (cell plus packaging) has declined from $288 per kilowatt-hour to $132 between 2016 and 2021, driven by higher volumes and improved technologies. Although the metric rose a bit in 2022, due to supply chain issues, it is unlikely to impact the longer-term trend. Tesla's battery costs are likely to be lower than the broader industry, considering the company is one of the largest EV players, giving it a better scale.

The electric car space is getting increasingly competitive

Mainstream automotive manufacturers are getting more serious about their electric vehicle programs as they look to take advantage of all-electric drive trains' performance and cost advantages. General Motors now offers the Chevy Bolt, an all-electric vehicle with a range of over 200 miles, while Nissan launched the second generation of its popular Leaf with an improved 150-mile range. Volkswagen announced it would invest as much as 70 billion euros (~$84 billion) in bringing around 300 electric models to market by 2030.