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Stock Analyst Update

Tesla Shares Rally on Infrastructure Bill

Our view for the company is unchanged and we maintain our $570 per share fair value estimate and narrow moat rating.

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On July 29, Tesla (TSLA) shares rallied nearly 5% at the time of writing on the news that the U.S. infrastructure bill was advancing in the Senate. The bill features $7.5 billion of funds that would be used to build 500,000 high powered electric vehicle chargers throughout the country. We had expected this to occur and had already incorporated this into our outlook for EV adoption and subsequently lithium demand, lithium prices, and producer profits. With our outlook unchanged, we maintain our $570 per share fair value estimate and narrow moat rating for Tesla.

At current prices, we view Tesla as slightly overvalued on a risk adjusted basis, with the stock trading in 3-star territory but a little less than 20% above our fair value estimate for the very high uncertainty name.

We recently doubled our outlook for U.S. EV adoption to 30% of new auto sales by 2030 from our previous forecast of 15%. The biggest driver behind our increase was the buildout of more chargers through the U.S. to 1.25 million public chargers by 2030, from a little over 100,000 in 2020. This should alleviate road trip anxiety, or the consumer fear that an EV will not work on road trips, due to largely to a lack of places to charge. As more EV chargers are visible at stops along highways, we see a change in consumer perception about a lack of charging infrastructure. In turn, this should drive more consumers to consider an EV, including a Tesla.

However, Tesla has its own charging network and uses a different charging connector than other EV chargers. Management has said it will open Tesla chargers to allow other EVs to charge at a Tesla location by installing converters. As such, it is possible that Tesla is able to secure some of the grant funding for the 500,000 chargers, which would help the company continue to expand its charging network, reducing future capital expenditure needs. If Tesla were to win a substantial portion of the grants, we would revisit our fair value estimate.

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Seth Goldstein does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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