Tesla Reports Solid Q3 Deliveries; Shares Overvalued

On Oct. 2, Tesla (TSLA) reported third-quarter deliveries of 241,300 vehicles. Most sales came from the model 3 and model Y vehicles. We have increased our outlook for 2021 and we now forecast Tesla will sell 870,000 vehicles over the year. Separately, we have updated our forecast for Tesla's three new vehicles, the Roadster sports car, the light truck, and the semitruck, to assume these vehicles enter production in 2023 instead of 2022.

Having updated our model to reflect these changes, we maintain our $600 fair value estimate for Tesla as the higher near-term sales is offset by a delayed production start of the new vehicles. Our narrow moat rating is also unchanged. At current prices, we view Tesla shares as overvalued, with the stock trading in 2-star territory, nearly 30% above our fair value estimate.

So far, Tesla has managed to avoid the automotive chip shortage that has caused production to fall for many automakers. We see a prolonged chip shortage as a risk that could eventually affect production volumes in 2022. However, as new semiconductor manufacturing capacity ramps next year, we think the risk to Tesla will diminish and we see no long-term risk to the company.

Tesla only provided automotive sales and production volumes, as the company releases these numbers before its full quarterly earnings update. In the earnings update, we will look for commentary on the status of the new 4,680 battery cells, which should greatly reduce production costs, driving long-term margin expansion. We also hope to get an update on the continuing progress of the full self-driving software. The software is currently available in beta mode to select users, with more Tesla drivers being able to opt in to use the software in the coming weeks. As the software is used in more vehicles, this should accelerate the testing process and shorten the timeline to launch. We think Tesla selling subscription software will be another driver of long-term margin expansion.