Trimming Tesla Fair Value Estimate to $250 Following Lower Q3 Deliveries

After incorporating Tesla’s (TSLA) preliminary third-quarter deliveries into our model, we reduce our fair value estimate to $250 per share from $255. Our narrow moat rating is unchanged. The reduction comes from our outlook for lower near-term vehicle deliveries than we had previously forecast.

Tesla shares were down 7% at the time of writing on the deliveries news. Despite the selloff, shares now trade just below our updated fair value estimate. As a result, we recommend investors wait for a larger margin of safety before considering an entry point.

Tesla reported preliminary third-quarter deliveries of 343,830, which is an all-time high. Reuters reported Tesla aims to produce around 495,000 vehicles in the fourth quarter. This would put Tesla at a little over 1.42 million deliveries for the year, which is below our previous forecast of 1.49 million. While management cited logistics issues that slowed end of quarter deliveries, we think this reflects the challenges ramping up production at its two new factories as well as restarting the Shanghai plant after the COVID-19 lockdowns during the second quarter. Regardless, we see no long-term issues that would affect production.

Separately, our key takeaway from Tesla’s AI day was that the company continues to make progress on its autonomous technologies. This year’s AI day largely showcased the progress the company has made over the past year since its initial AI day last August. The company’s autonomous driving software continues to make progress, and we think the Level 3 version could be ready for subscription sales in the next couple of years.

The event also showed a prototype of the humanoid robot. In our view, this is an excellent example of how Tesla could reduce its manufacturing costs by implementing the humanoid robots in its plants. However, we think the company is still likely years away before it would begin selling the robots for commercial use, likely initially to be used in other manufacturing plants.