Skip to Content
Stock Analyst Update

Tesla Increases Vehicle Sales From Fleet Opportunity

We've raised our fair value estimate for the narrow-moat automaker to $680 per share.

Mentioned: ,

On Oct. 25, rental car company Hertz (HTZZ) announced plans to purchase 100,000 Tesla Model 3 vehicles by the end of 2022. We think the move will set up Tesla (TSLA) for further fleet deals, and we have increased our sales volume outlook. While rental car companies typically get a discount for purchasing vehicles, we expect Tesla offered no discount to Hertz, given the company's growing vehicle backlog. Having updated our model to reflect this higher volume, we've raised our Tesla fair value estimate to $680 per share from $650. Our narrow moat rating is unchanged.

The market responded positively to the news, sending Tesla shares up 12% at the time of writing. However, we view the shares as currently overvalued, trading in 2-star territory and 15% below our bull-case fair value estimate of $1,200. As such, we think much of the good news is already priced into the stock.

Over time, we expect other rental car companies to follow suit and increase their proportion of electric vehicle rentals, which will likely include Tesla vehicles and other EVs. We think rental car companies carrying an increasing proportion of electric vehicles will help long-term EV adoption. We continue to forecast EVs will reach cost and functional parity with internal combustion engines by 2025. At that point, for consumers who are interested in electric vehicles but hesitant to buy one, renting an EV is an opportunity for an extended test drive to alleviate road trip anxiety. This drives our above-consensus forecast for 30% EV adoption by 2030.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

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