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Tesla's Moat Rating Gets a Boost

We expect the EV maker to keep innovating to stay ahead of competitors.

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After upgrading Tesla’s (TSLA) economic moat rating to narrow from none and accounting for good third-quarter results, we have raised our fair value estimate to $319 per share from $195. About 41% of the increase is from the moat upgrade, while nearly all the rest is from increasing our estimate of total vehicles delivered through 2029 by about 37% to 22.7 million. This change leads to more scale and an increase in our midcycle operating margin to 12% from 11%.

Tesla has a chance to be the dominant electric vehicle company and is a leading autonomous vehicle player as well as a vertically integrated sustainable energy company with energy generation and storage products, but we do not see it having mass-market volume this decade. Tesla’s product plans for now do not mean an electric vehicle for every consumer who wants one, because the prices are too high. The Model X crossover released in late 2015 starts at about $80,000, the Model S sedan’s starting price is $69,420, the Model 3 sedan starts at $37,990, and the Model Y crossover starts at about $50,000. Tesla’s U.S. customers no longer receive the federal tax credit.

David Whiston does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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