Tesla: Staff Reduction Confirms Our View of Focus on Profits In 2024

Key Morningstar Metrics for Tesla

• Fair Value Estimate: $195.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

On April 15, Tesla shares fell 3% on news of the firm’s plan to lay off more than 10% of its workforce, as well as the departure of at least one high-level executive. The move is consistent with Tesla’s strategic shift toward profitability over delivery growth in 2024. The company has historically adjusted its workforce based on its strategy, hiring during periods of growth and reducing headcount during slowdowns.

Following the decline in first-quarter deliveries, we think Tesla will reduce costs in 2024 to maximize profits. This reflects our view that the firm will aim to stabilize unit gross profit margins in the automotive segment and focus on improving companywide operating profit margins. Because of this, we see no reason to change our outlook for the company, and we maintain our $195 fair value estimate and narrow moat rating.

We will update our model after Tesla’s earnings update next week, but we view its shares as slightly undervalued at their current price. The stock trades around 15% below our fair value estimate, though still in 3-star territory. Accordingly, we recommend investors wait for a larger margin of safety before considering entry.

One of Tesla’s key departures was Drew Baglino, its senior vice president of powertrain and engineering. Since he was likely working on the powertrain for the new affordable vehicle, the headcount reduction may relate to potential delays in that model. We hope Tesla’s management will clarify its strategy during the call, including its current plan for the affordable vehicle platform. We also hope to hear its view on the company’s ability to generate long-term growth with a smaller workforce.