Tesla: Roadster Shows Unique Technology That Will Make a Strong Halo Car

Key Morningstar Metrics for Tesla

• Fair Value Estimate
  : $450
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Very High

Tesla TSLA unveiled its new Roadster sports car.

Why it matters: The Roadster will be Tesla’s new halo car, or high-performance luxury vehicle designed to showcase an automaker’s best engineering and technology. The release event showed the Roadster using SpaceX technology, a thruster and fan system, to allow the car to temporarily fly.

• Tesla also claimed the vehicle will be able to do 0 to 60 miles per hour in 0.81 seconds, which would make it the fastest car in the world. If this were timed at a race track, it would be a little less than half of the current world record of 1.66 seconds.
• A high-end sports car that is the fastest car in the world and that can temporarily fly does a great job highlighting Tesla as a unique luxury car company, which should draw consumers to Tesla vehicles and could support increased deliveries once the car enters production in 2028.

The bottom line: We maintain our $450 fair value estimate per share for narrow-moat Tesla. Our model already assumes the Roadster launches in 2028. We forecast the Roadster will be Tesla’s lowest volume vehicle at less than 2,000 deliveries per year after production ramps up.

• At current prices, we view Tesla shares as slightly undervalued—trading around 20% below our fair value estimate—which puts the stock on the border of 3-star and 4-star territory.

Coming up: Tesla plans to report earnings on Oct. 21 after market close. We think the market will focus on free cash flow, which we expect will be negative for a second straight quarter given Tesla’s large capital expenditure plans.

• The market will also focus on management’s guidance for the near-term progress on the robotaxi and humanoid robot products.

Big picture: Tesla’s investments in these real-world artificial intelligence products are necessary for the company to transition from primarily selling cars and batteries to autonomous driving software and humanoid robots. We see a reasonable margin of safety at current prices.