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Tesla: Fast-Tracked Production Leads to Fair Value Boost

The dramatic acceleration of Tesla’s production plans will lead to a significant increase in our fair value estimate -- to the $300 to $330 range -- writes Morningstar’s Dave Whiston.

The quarterly results are not important to us relative to the long-term growth plan of the company, which is the real value creation story. Due to initial orders for the Model 3 sedan of more than 400,000 units far exceeding even Elon Musk’s expectations, the company announced a dramatic acceleration to its production plans, driving our fair value increase. For years Tesla has said once the gigafactory in Nevada is operational, the company can make 500,000 vehicles a year in 2020. That timeline is now moved up to 2018 and Elon Musk went further during the call to say one million vehicles in 2020 is his best guess. Musk said this one million could be feasible with just the California plant and the gigafactory but he rightfully feels making all vehicles in one place to serve a global market does not make sense. Therefore, there is much uncertainty as to how much capital will be needed to meet these new hyper-ambitious targets. Management said additional capital raises are likely and it will come from both equity and debt. In light of the capital markets being readily available to Tesla, we plan to model $1.5 billion of equity issuance in 2016 as well as $1 billion of new debt. Capital spending guidance is now at least $2.3 billion this year from $1.5 billion.

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About the Author

David Whiston

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007.

Before Morningstar, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner. In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011.

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