Morningstar

Tesla Makes a Profit, but There's a Long Way to Go

A profitable quarter was a pleasant surprise, but we plan to lower our fair value estimate.

Securities In This Article
Tesla Inc
(TSLA)

We plan to lower our fair value estimate to about $230 from $259. The change is from further deduction for the SolarCity acquisition including taking on our estimate of that company’s debt of $3.4 billion. We still expect Tesla shareholders to vote for the deal on Nov. 17. We also use a lower standalone SolarCity valuation of $10 per share instead of $20, which increases the deduction in our Tesla model to acquire SolarCity by about $1 billion. We also increased Tesla’s share count to reflect it increasing in the third-quarter earnings release.

Much optimism surrounds Tesla considering the profitable third quarter and CEO Elon Musk seemed confident the company can repeat this feat in fourth quarter excluding stock compensation charges and possibly be profitable on a GAAP basis. Musk also stressed there is no need for the firm to raise capital this year or in first-quarter 2017; but we would like Tesla to raise more money while it can. This raise would fund its growth plans and provide ample liquidity to survive the next downturn.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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