Tesla Reports Q1 Deliveries; Shares Overvalued

We maintain our $700 per-share fair value estimate for Tesla TSLA after the company reported first-quarter deliveries. Our narrow moat rating is also unchanged. At current prices, we view Tesla shares as overvalued with the stock trading in 2-star territory and more than 50% above our fair value estimate. Our forecast implies Tesla will become a top-10 automaker globally in annual vehicle deliveries, averaging annual deliveries growth of nearly 20% over the next decade. However, the current market price implies Tesla will become a top-three automaker. As such, we think much of the good news is already priced into the stock. Tesla reported a little over 310,000 vehicle deliveries during the quarter, which was roughly flat compared with the company's fourth-quarter numbers. We continue to forecast over 1.52 million vehicle deliveries in 2022, which represents an average of over 380,000 vehicle deliveries per quarter. We think Tesla's deliveries will continue to increase sequentially throughout the year due to higher production. This will come from the opening and ramp-up of its two now factories and eventual resumption of full production at the Shanghai plant. While we forecast Tesla will grow deliveries over 60% in 2022 versus 2021, we see automotive gross profit margins shrinking due to startup costs associated with opening and ramping up the new factories. As such, we would not be surprised to see lower profitability in the first quarter on a sequential basis versus the fourth quarter of last year. However, as production ramps up, we expect Tesla will expand margins over the long-term due to lower unit manufacturing costs and increased sales of higher-margin autonomous driving software.

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