No Changes to Our Outlook as Tesla Proposes 3-for-1 Stock Split

On June 10, Tesla (TSLA) filed its notice of the 2022 annual meeting of shareholders, which will be held Aug. 4. One of the proposals was a 3-for-1 stock split, which would occur through a stock dividend. We think the proposal is likely to go through, as Tesla’s board has previously approved a stock split with the goal to reduce the price of a single share. While a stock split does not change our enterprise valuation for Tesla, it would currently change our fair value estimate from $750 per share to $250 due solely to the new share count. While we think the split will likely be approved, we will wait until after the meeting in early August to update our fair value estimate. As such, our current $750 per share fair value estimate is unchanged. Our narrow moat rating is also unchanged.

At current prices, we view Tesla as fairly valued with the stock trading slightly below our fair value estimate but in 3-star territory. Accordingly, we recommend investors wait for a larger margin of safety before considering an entry point. We reiterate our very high uncertainty rating on the stock. Given that Tesla is still in the early stages of its growth, we see a wide range of outcomes for the company.

On June 9, news media reported second-quarter production at Tesla’s Shanghai factory is on track to fall by roughly one third versus the first quarter of the year due to the COVID-19-related shutdowns. This aligns with our outlook that Tesla will likely see slightly lower global production this quarter. We think lower production at the Shanghai factory as well as startup costs associated with the opening and ramp up of its two new plants will weigh on second-quarter profits. However, as production ramps up, we expect profit margins will increase sequentially throughout the third and fourth quarters.