Tesla: Full Self-Driving Approval In China Supports Our View for Deliveries Growth In 2024

Key Morningstar Metrics for Tesla

• Fair Value Estimate: $200.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

On April 29, Tesla TSLA shares rose over 10% at the time of writing due to multiple outlets reporting that the company cleared regulatory hurdles in China and was given tentative government approval to sell its full self-driving driver-assistance software, or FSD, in the country.

The move should drive Tesla sales higher in China, where the automaker faces increasing competition from electric vehicle manufacturers with lower prices. Additionally, the ability to sell FSD software in a new market should drive higher adoption rates. We think Tesla’s FSD is currently a differentiator, since we view the firm as a leader in driver-assistance software. Tesla will partner with Baidu BIDU in China, using its mapping and navigation services, which should help accelerate FSD adoption there.

We already assumed Tesla would see rising sales in the remainder of the year, as we forecast a small increase in deliveries in 2024 while first-quarter deliveries fell 8.5% from the prior-year quarter. Additionally, we raised our forecast for FSD adoption. Accordingly, we maintain our $200 fair value estimate and narrow moat rating, with our outlook intact.

At current prices, we view Tesla as fairly valued, with the stock trading a little below our fair value estimate in 3-star territory. Accordingly, we recommend investors wait for a pullback in shares. Since Tesla is a high-growth stock, changes in market sentiment around its growth trajectory can disproportionately impact its price. This volatility underpins our Very High Uncertainty Rating.