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Tesla Reports Strong Quarter; We Raise FVE to $700

Our long-term outlook remains unchanged as we continue to expect sales growth will slow.

On Jan. 2, Tesla TSLA reported strong fourth-quarter and full-year vehicle delivery numbers. On the year, Tesla reported 936,172 vehicles delivered, which is up over 87% year on year versus 2020. We have updated our model to incorporate higher 2021 sales volumes and have raised our outlook for 2022. We forecast Tesla will deliver a little over 1.5 million vehicles in 2022, which represents over 60% year-on-year growth. Separately, we have decreased our 2022 gross margin forecast for Tesla as we expect increased production costs associated with the opening of the two new production plants in Austin, Texas, (U.S.) and in Berlin, Germany. Our long-term outlook is largely unchanged as we continue to expect Tesla's sales growth will slow. Having updated our model to reflect these changes, we raise our Tesla fair value estimate to $700 per share from $680. Our narrow moat rating is 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. The current stock price implies Tesla will become one of the top automakers globally in vehicles delivered by 2030. It also implies the company will expand profit margins through the reduction of unit production costs and widespread customer adoption of its high-margin autonomous driving software subscriptions. As such, we think much of the good news is already priced in as the stock trades closer to our bull case fair value estimate of $1,220 per share, versus our base case. We also see potential downside catalysts for the stock. Falling profit margins from opening the new plants could weigh on market sentiment. Additionally, Tesla's Cybertruck delay will cause it to not be a first mover in the EV light truck market. Instead, the Cybertruck will immediately face competition from traditional automakers such as Ford and new entrants such as Rivian. As such, the Cybertruck could see slower initial sales, weighing on market sentiment.

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