Ahead of Earnings, Is Tesla Stock a Buy, a Sell, or Fairly Valued?

Tesla is set to release its third-quarter 2026 earnings report on Oct. 21. Here’s Morningstar’s take on what to look for in Tesla’s earnings and the outlook for its stock.

Key Morningstar Metrics for Tesla

• Fair Value Estimate
  : $450.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Very High

Tesla Earnings Release Date

Wednesday, Oct. 21, after the close of trading.

What to Watch for in Tesla’s Q3 Earnings

• We will look at Tesla’s free cash flow, which turned negative last quarter as the company ramped up capital expenditures for artificial intelligence initiatives and expanded manufacturing operations. Tesla generated strong free cash flow in the third quarter of 2025. With deliveries down just 2% this quarter versus last year, we will look to see if Tesla can offset the increased capex through cash from operations.
• Tesla launched its Cybercab vehicle in Austin, Texas, in the third quarter, and it’s targeting Dallas for the next deployment. We hope to hear updates on Cybercab manufacturing, the timeline for future Cybercab deployments, and when robotaxi service will expand to new cities.
• Finally, we hope to hear an update on Optimus. Tesla is constructing its first Optimus manufacturing plant line in California. We’d like to know when production will begin and the timeline for deployment.
• We view Tesla shares as slightly undervalued, trading about 15% below our $450 fair value estimate but in 3-star territory. In short, Tesla is not cheap, but we see an upside at its current price.

The following are excerpts from Morningstar’s company report on Tesla.

Fair Value Estimate for Tesla

With its 3-star rating, we believe Tesla stock is modestly undervalued compared with our long-term fair value estimate of $450 a share.

In 2026, we forecast deliveries will grow roughly 10% to nearly 1.8 million versus 1.64 million in 2025. We see lower US deliveries in the first three quarters due to the US EV tax credit expiration in September 2025. Longer term, we assume Tesla will deliver around 2.8 million vehicles per year in 2030, driven by the adoption of full self-driving software and the more affordable versions of the Model Y and Model 3.

The majority of our valuation comes from Tesla’s AI software and robotics ventures. Our robotaxi valuation accounts for over 30% of our Tesla valuation. Our FSD software subscription valuation accounts for nearly 20%. Our base case also adds the present value of Optimus humanoid robot sales and subscription software, which we value at nearly 30% of our fair value estimate.

Read more about Tesla’s fair value estimate.

Economic Moat Rating

We award Tesla a narrow moat, stemming from its intangible assets and cost advantage.

Tesla’s intangible assets are its brand and differentiated autonomous driving software technology. In our view, consumers’ willingness to pay for a Tesla is due to the technology, which drives the brand. Tesla vehicles can update via WiFi or a cellular connection, and customers do not have to visit a store for many service needs. Third-party testing shows Tesla also offers the best autonomous driving software available in a consumer vehicle. With research and development spending in line with its peers, we think Tesla will be able to maintain its proprietary technological advantage.

We think Tesla benefits from a cost advantage in US electric vehicle production thanks to its electric vehicle manufacturing expertise and its scale. We expect Tesla will continue to have lower costs and higher gross profit margins than its US peers.

Read more about Tesla’s economic moat.

Financial Strength

Tesla is in excellent financial health. Cash, cash equivalents, and investments were $43.5 billion and far exceeded total debt as of June 30. Total debt was a little less than $9.1 billion; however, total debt excluding vehicle and energy product financing (nonrecourse debt) was less than $5 million.

Tesla’s growth going forward will be largely self-funded. With its positive free cash flow generation and large cash balance, we think Tesla should be able to fund its growth plans over at least the next two years without needing to raise debt.

Historically, Tesla has used credit lines, convertible debt financing, and equity offerings to raise capital. We think the company would have no problem raising debt if needed to fund its robotaxi and humanoid robot growth plans.

Read more about Tesla’s financial strength.

Risk and Uncertainty

We assign Tesla a Very High Uncertainty Rating, as we see a wide range of potential outcomes for the company. The automotive market is highly cyclical and subject to sharp demand declines based on economic conditions. As new lower-priced EVs enter the market, Tesla has cut prices and offered lower-cost versions of its Model 3 and Model Y vehicles. Further price cuts could reduce profits.

The company is also investing heavily in R&D and capital expenditures to develop autonomous driving software, robotaxis, and humanoid robots, with no guarantee these investments will bear fruit.

Tesla faces environmental, social, and governance risks. As an automaker, Tesla is subject to potential product defects that could result in recalls, including its autonomous driving software. We see a moderate impact should this occur.

Tesla may also face regulatory issues in some US states due to laws that require automakers and dealers to be separate. We see a moderate probability but low materiality.

Read more about Tesla’s risk and uncertainty.

TSLA Bulls Say

• Tesla could disrupt multiple industries with its technology for EVs, AVs, batteries, and humanoid robots.
• Tesla’s full self-driving software should generate growing profits in the coming years as it continues to improve, leading to a robotaxi service and increased adoption by Tesla drivers.
• Tesla’s humanoid robot will create shareholder value as its ability to perform multiple functions will transform manufacturing and be useful to consumers.

TSLA Bears Say

• Traditional automakers and new entrants are investing heavily in EV development, which will result in declining deliveries. This will force Tesla to cut prices due to increased competition, eroding profit margins.
• Tesla’s large investment in autonomous driving software will be value-destructive as the robotaxi product will face delays and competition from Waymo, which already offers a robotaxi service.
• CEO Musk’s political activities will turn consumers away from buying a Tesla in key markets, including the US and Europe, leading to lower sales and profits.

This article was compiled by Colin Laidley.