Raising Tesla Stock Fair Value Estimate to $760 on Improved Nonautomotive Outlook; Shares Fairly Valued

Tesla’s (TSLA) second-quarter results reflected the company’s temporary issues as gross profits fell over 20% versus the first quarter but were still up over 45% year on year. During the quarter, revenue and profits were affected by COVID-19-related lockdowns that affected production at the company’s Shanghai factory. Additionally, the opening and ramp-up of the new factories in Austin and Berlin weighed on profits. However, we had largely expected that the second quarter would be the low point of the year, and we maintain our outlook for Tesla to deliver around 1.5 million vehicles in 2022. Our outlook for the automotive segment is largely unchanged.

Separately, we have increased our outlook for profitability in the energy generation and storage segment as Tesla has been able to improve profits as a result of higher solar installation volume. Additionally, we have raised our forecast for the company’s services and other business to incorporate higher charging profits as Tesla increasingly opens its supercharger network to all electric vehicles.

Having updated our model to reflect these changes, we’ve raised our fair value estimate to $760 per share from $750. We view Tesla shares as fairly valued currently, trading in 3-star territory near our fair value estimate. While the shares are down nearly 40% from their 52-week high, we recommend investors wait for a larger pullback before considering an entry point.

During the earnings call, management confirmed our view for the year that the Austin and Berlin factories were ramping up production, and it targets all factories to run at an annual production rate of over 2 million vehicles by the end of 2022. We think this is achievable, which would allow Tesla deliveries to reach roughly 1.5 million vehicles in 2022 and grow to over 2 million in 2023.