TSLA - Tesla Inc (Stock Report)

Morningstar Equity Analyst Report | Report as of 21 Jul 2023 22:21, UTC | Reporting Currency: USD | Trading Currency: USD
| Exchange: NASDAQ - ALL MARKETS Page 1 of 23
Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC
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Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1
260.02 USD 215.00 USD 1.21 833.26 USD Bil Narrow Stable Very High Exemplary ;;;;;
21 Jul 2023 5 Jul 2023 05:00, UTC
21 Jul 2023 20 Apr 2023 01:04, UTC
Price vs. Fair Value
Last Close: 260.02

400 Fair Value: 215.00
20 Apr 2023 01:04, UTC
300 Over Valued

Under Valued
200
100
0
2018 2019 2020 2021 2022 YTD Analysis
1.50 1.28 2.31 1.55 0.49 1.21 Price/Fair Value
6.89 25.70 743.44 49.76 -65.03 111.09 Total Return %
Morningstar Rating
Total Return % as of 21 Jul 2023. Last Close as of 21 Jul 2023. Fair Value as of 20 Apr 2023 01:04, UTC.
Contents
Analyst Note (20 Jul 2023) Tesla Earnings: Profit Margins Contract for Third Straight
Business Description
Business Strategy & Outlook (20 Apr 2023) Time, Driven by Price Cuts
Bulls Say / Bears Say (20 Jul 2023)
Analyst Note Seth Goldstein, CFA, Strategist, 20 Jul 2023
Economic Moat (19 Apr 2023)
Fair Value and Profit Drivers (19 Jul 2023)
We maintain our $215 per share fair value estimate and narrow moat rating for Tesla following the
Risk and Uncertainty (19 Apr 2023) company's second-quarter earnings. Tesla shares were down 4% in afterhours trading as the market
Capital Allocation (19 Apr 2023) responded to management's commentary that further price cuts could be coming later this year. At
Analyst Notes Archive current prices, we view Tesla shares as overvalued, with the stock trading in 2-star territory.
Financials
ESG Risk In response to slowing demand, Tesla began cutting prices in the fourth quarter of 2022 and has
Appendix
continued through the first half of this year, leading to three straight quarters of lower average selling
Research Methodology for Valuing Companies
prices and lower automotive gross profit margins. We think the company is likely to cut prices in the
Important Disclosure
second half of the year in response to other automakers also cutting prices, which would result in
The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of
Conduct Policy, Personal Security Trading Policy (or an equivalent of), and further margin declines. Accordingly, we reduced our 2023 automotive gross profit assumption.
Investment Research Policy. For information regarding conflicts of interest, please
visit: http://global.morningstar.com/equitydisclosures. However, we think prices will begin to stabilize by the end of the year as economic conditions improve,
The primary analyst covering this company does not own its stock. leading to 2023 being the cyclical low for margins.
The ESG Risk Rating Assessment is a representation of Sustainalytics’ ESG Risk
1
Rating. During the earnings call, management highlighted the launch of the company's first pickup truck, aptly
named Cybertruck. Over the long term, we see this vehicle as having a relatively modest contribution to
total deliveries, as we forecast a peak of around 100,000 vehicles per year, well short of management's
250,000 target. However, the truck aims to show off Tesla's new technology, which we view as crucial
to Tesla's brand, which is producing vehicles with the best technology.
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Morningstar Equity Analyst Report | Report as of 21 Jul 2023 22:21, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 2 of 23
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21 Jul 2023 5 Jul 2023 05:00, UTC
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Additionally, Tesla began production of its Dojo supercomputer. This aims to train Tesla's autonomous
driving software, which should allow the company to develop faster improvements and accelerate the
timeline for the full launch. The full self-driving software should allow Tesla's vehicles to have a third
Sector Industry
t Consumer Cyclical Auto Manufacturers ancillary revenue stream, in addition to charging and insurance, which boosts the value of each car sold
to Tesla over the long-run.
Business Description
Founded in 2003 and based in Palo Alto, California, Tesla
is a vertically integrated sustainable energy company
Business Strategy & Outlook Seth Goldstein, CFA, Strategist, 20 Apr 2023
that also aims to transition the world to electric mobility Tesla is one of the largest battery electric vehicle automakers in the world. In less than a decade, the
by making electric vehicles. The company sells solar company went from a startup to a globally recognized luxury automaker with its Model S and Model X
panels and solar roofs for energy generation plus vehicles. The company also competes in the entry-level luxury midsize car and crossover SUV markets
batteries for stationary storage for residential and
with its Model 3 and Model Y vehicles. Tesla also plans to sell new vehicles over the next several years,
commercial properties including utilities. Tesla has
including a light truck, a semi truck, a sports car, and an affordable sedan and SUV.
multiple vehicles in its fleet, which include luxury and
midsize sedans and crossover SUVs. The company also
Tesla aims to maintain its market leader status as EVs grow from a niche market to reaching mass
plans to begin selling more affordable sedans and small
SUVs, a light truck, a semi truck, and a sports car. Global consumer adoption. We forecast EVs will reach 40% of global auto sales by 2030. To meet growing
deliveries in 2022 were a little over 1.3 million vehicles. demand, Tesla opened two new factories in 2022, which increased its production capacity. Tesla also
invests around 4% of its sales in research and development, focusing on improving its market-leading
technology and reducing its manufacturing costs. For EVs to see mass adoption, they need to reach cost
and function parity with internal combustion engines. To reduce costs, Tesla focuses on automation and
efficiency in its manufacturing process, such as reducing the total number of parts that need to be
assembled in a vehicle. The company also began designing its own batteries. Tesla's goal is to reduce
costs by over 50%.
To reach functional parity, EVs will need to have adequate range, reduced charging times, and
availability of charging infrastructure. Tesla’s extended-range EVs are already at range parity with ICE
vehicles. The company also continues to expand its supercharging network, which consists of fast
chargers built along highways and in cities throughout the U.S., EU, and China. The range and
supercharger network help eliminate road trip anxiety, or the functional barrier to mass market EV
adoption.
Tesla is also attempting to take a larger share of its customers’ auto-related spending, which includes
selling insurance and offering paid services such as autonomous driving software.
Tesla also sells solar panels and batteries used for energy storage to consumers and utilities. As the
solar generation and battery storage market expands, Tesla is well positioned to grow accordingly.
Bulls Say Seth Goldstein, CFA, Strategist, 20 Jul 2023

u Tesla has the potential to disrupt the automotive and power generation industries with its technology
for EVs, AVs, batteries, and solar generation systems.
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Competitors
Volkswagen AG Vorz-Inhaber-Akt ohne
Tesla Inc TSLA Ford Motor Co F Bayerische Motoren Werke AG BMW
Stimmrecht VOW3
Last Close Fair Value Fair Value Fair Value

260.02 19.00 157.00 338.00
Uncertainty : High Uncertainty : High Uncertainty : High
Fair Value
Last Close
215.00 Last Close
Uncertainty : Very High
Last Close 124.92
13.93 107.58
Analysis Security 1 Security 2 Security 3 Security 4
Economic Moat Narrow None Narrow None
Moat Trend Stable Negative Negative Negative
Currency USD USD EUR EUR
Fair Value 215.00 20 Apr 2023 01:04, UTC 19.00 22 May 2023 23:40, UTC 157.00 28 Apr 2023 01:55, UTC 338.00 25 Apr 2023 19:44, UTC
1-Star Price 376.25 29.45 243.35 523.90
5-Star Price 107.50 11.40 94.20 202.80
Over Valued 21 Jul 2023 Under Valued 20 Jul 2023 Under Valued 20 Jul 2023 Significantly 20 Jul
Assessment
Undervalued 2023
Morningstar Rating QQQ21 Jul 2023 21:20, UTC QQQQ21 Jul 2023 21:20, UTC QQQQ20 Jul 2023 23:58, UTC QQQQQ20 Jul 2023 23:58, UTC
Analyst Seth Goldstein, Strategist David Whiston, Sector Strategist Richard Hilgert, Senior Equity Analyst Richard Hilgert, Senior Equity Analyst
Capital Allocation Exemplary Standard Standard Standard
Price/Fair Value 1.21 0.73 0.69 0.37
Price/Sales 10.62 0.34 0.43 0.21
Price/Book 16.30 1.32 0.80 0.37
Price/Earning 77.32 19.22 6.23 4.98
Dividend Yield — 4.28% 7.89% 7.06%
Market Cap 833.26 Bil 56.13 Bil 70.94 Bil 69.71 Bil
52-Week Range 101.81—314.67 10.90—16.68 68.44—113.46 112.84—153.74
Investment Style Large Growth Large Value Large Value Large Value
u Tesla will see higher profit margins as it reduces unit production costs over the next several years.
u Through the combination of Tesla’s industry-leading technology and its unique supercharger network,
the company’s EVs offer the best function of any on the market, which should help Tesla maintain its
market-leader status as EV adoption increases.
Bears Say Seth Goldstein, CFA, Strategist, 20 Jul 2023

u Traditional automakers and new entrants are investing heavily in EV development, which will result in
Tesla seeing a deceleration in sales growth and being forced to cut prices due to increased competition,
eroding profit margins.
u Tesla's reliance on batteries made in China for its lower-price Model 3 vehicles will hurt sales as these
autos will not qualify for U.S. subsidies.
u Solar panel and battery prices will decline faster than Tesla can reduce costs, resulting in little to no
profits for the energy generation and storage business.
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Economic Moat Seth Goldstein, CFA, Strategist, 19 Apr 2023

We award Tesla a narrow moat rating. Tesla's moat stems from two of our five moat sources: intangible
assets and cost advantage. The company's strong brand cachet as a luxury automaker commands
premium pricing, while its EV manufacturing expertise allows the company to make its vehicles cheaper
than its competitors.
Intangible Assets
Tesla's brand cachet is not likely to be impaired anytime soon as other automakers move into the battery
electric vehicle space because we expect the company to keep innovating to stay ahead of startup and
established competitors. The Model S Plaid, the most upgraded version of Tesla's luxury sedan, offers
390 miles of range, which is at the high end for electric vehicles. It does 0-60 mph in under 2 seconds
and has 1,020 horsepower, putting the Model S Plaid in a rare class of performance among all autos,
regardless of powertrain. By focusing on the luxury auto market first, Tesla was able to create
tremendous media publicity for the company that reaches beyond its customers. This generated strong
consumer demand for its subsequent vehicles at lower price points, such as the Model 3 and Model Y.
As other new vehicles are launched, such as the Cybertruck or the platform that will produce the
affordable sedan and SUV (known as the $25,000 vehicle), we expect the company's strong brand will
continue to generate consumer demand.
Tesla has a more high-tech vehicle with the ability to do drivetrain updates and other updates via Wi-Fi
or a cellular connection, and customers do not have to visit a store for many service needs. Tesla will
instead pick up the vehicle from home and often return it the same day, while providing a fully loaded
loaner for no charge, or visit the customer's home or work and service the car there. This experience is
much easier than many other automakers' service, which helps Tesla's brand equity. Further, this has
been accomplished with little to no spending on advertising, which is rare for a consumer brand. This
strong brand equity has carried over to Tesla's energy generation and storage business, where the
company can charge a premium for its fully integrated solar panel, inverter, and home battery storage
systems sold to consumers.
Tesla's proprietary technology contributes to its intangible asset-driven competitive advantage. This
form of intangible assets applies to EVs due to their innovative, highly engineered nature and because
patents for EV technologies hold somewhat less value due to the ability of competitors to create
alternatively designed, but ultimately similar, products. Since launching the Model S in 2012, Tesla has
been the industry leader in electric vehicles, producing the best EVs on the market. The company invests
nearly 6% of sales in R&D to maintain its best-in-class range, which is well ahead of the competition on
a miles per kilowatt-hour basis and continues to improve other vehicle specs such as power. Tesla is
also investing heavily in its proprietary autonomous vehicle technology and building one of the world's
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largest supercomputers to train self-driving artificial intelligence. With R&D spending in line with its
peers, we think Tesla will be able to maintain its proprietary technological advantage.
Tesla will face increasing competition in the coming years. Automakers plan to electrify their fleets by
adding EV versions of existing vehicles and creating new platforms. However, we see EVs becoming a
greater proportion of auto sales, growing to 30% by 2030, up from 3% in 2020, which will expand the
market as EVs rapidly take share from internal combustion engine vehicles. As new models are
introduced, Tesla's technological advantage and the strength of its brand will remain intact, which will
allow the company to continue to charge a premium price for its EVs.
Cost Advantage
We think Tesla benefits from a cost advantage in electric vehicles production thanks to its
manufacturing scale. Tesla's total vehicle volume has grown from just over 100,000 in 2017 to over 1.3
million deliveries in 2022. During the same period, the company's average cost of goods sold per vehicle
has fallen over 50%, from $84,000 to under $39,000, and gross profit margins have expanded from 20%
to 26% excluding the sale of regulatory credits. While some of this is due to manufacturing a greater
proportion of midsize cars and SUVs versus luxury autos, the majority of the COGS decline has come
from the company's focus on reducing manufacturing costs due to scale. Legacy automakers are
gradually transitioning to BEV production from internal combustion engines, but we expect they will be
saddled with legacy ICE costs for a long time. Even as legacy automakers begin to produce more EVs,
we expect Tesla will continue to have lower costs as it has outlined a plan to further reduce battery cell
costs by 56% over the next several years. With Tesla's cost per vehicle set to fall, incumbent automakers
may take years to catch up to Tesla, if ever, as they won't want to build many new factories from
scratch like Tesla is doing.
We think Tesla's combination of intangible assets and cost advantage will persist in the future and
allow the firm to generate excess returns on capital. We see the potential for Tesla to outearn its cost of
capital over at least the next 20 years, which is the measurement we use for a wide moat rating.
However, the second 10-year period carries significant uncertainty for both Tesla and the broader
automotive industry, given the rapid advancement of autonomous vehicle technologies that could
transform how consumers use vehicles. As such, we view a narrow moat rating, which assumes a 10-
year excess return duration, as more appropriate.
Fair Value and Profit Drivers Seth Goldstein, CFA, Strategist, 19 Jul 2023
Our fair value estimate is $215 per share. We use a weighted average cost of capital of just under 9%.
Our equity valuation adds back nonrecourse and nondilutive convertible debt.
In the near term, we forecast Tesla grows its annual total vehicle delivery volume to around 1.8 million
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in 2023, or roughly 37% versus 2022. However, due to price cuts far exceeding cost savings, we forecast
automotive gross margin contraction in 2023 to 19% from the 29% achieved in 2022.
Longer-term, we assume Tesla delivers around 5 million vehicles per year in 2030. This includes fleet
sales, an expanding opportunity for Tesla. Our forecast is well below management’s aspirational goal of
selling 20 million vehicles by the end of this decade. However, it is nearly 4 times the 1.31 million
vehicles delivered in 2022. Our forecast assumes Tesla increases its Model Y deliveries, then
successfully launches its light truck, sports car, semi truck, and eventually the affordable sedan and SUV
platforms. We think Tesla will be successful in continuing to reduce its manufacturing costs on a per
vehicle basis. Combined with a shift to producing a greater proportion of higher-priced Model Y
vehicles, we forecast segment gross margins will expand to roughly 31% from the 29% level achieved in
2022, generating automotive profit growth in excess of revenue growth. We assume revenue growth
and margin expansion from autonomous software sold on a subscription basis. We also assume the
successful growth of the insurance business and increased profits from the charging business result in
long-term profit growth in the services and other segment.
We assume the energy storage business grows at nearly a 33% annual rate over our 10-year forecast,
primarily driven by accelerating demand for energy storage systems. While we forecast ESS prices to
decline, the fall will largely be driven by cheaper battery costs, which should not affect profitability. As
volume grows, unit costs should fall. Combined with recurring revenue from long-term power purchase
agreements and AI trading software, we expect the business will turn profitable and generate gross
margins in line with peers such as Enphase and SolarEdge.
Additionally, we assume Tesla's overhead expenses continue to decline as a percentage of sales as the
company benefits from operating leverage as deliveries grow. As a result, we forecast companywide
operating margins will reach 20% by the end of the decade, up from 17% in 2022.
To fund this growth, we assume Tesla will need to spend over $100 billion in capital expenditures over
the next decade. Our base case also adds the present value of Tesla’s autonomous vehicle ride-hailing
(robotaxi) business, which accounts for roughly 7% of our total valuation. This figure assumes Tesla
captures a 2.5% market share across the combined markets of the U.S., EU, and China and charges
$0.75 per mile. Finally, we add the present value of Dojo's AI training services and the present value of
humanoid robot sales, which accounts for less than 1% of our total valuation combined.
Given the wide range of outcomes for Tesla, we also model additional scenarios. Our downside scenario
fair value estimate is $90 per share. In a downside scenario, we assume Tesla delivers just 2 million
vehicles in 2030. We also assume cost reductions do not materialize as planned and Tesla is forced to
cut prices amid increasing competition, which reduces gross profit margins to 25% from 29% in 2022.
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We also assume Tesla gets no benefit from autonomous driving software and sees slower growth in the
insurance business. Finally, in this scenario, we assign no value to the company's ancillary business
including robotaxi, Dojo's AI training services, and humanoid robots.
Our upside scenario fair value estimate is $420 per share. In an upside scenario, we assume Tesla
delivers around 10 million vehicles per year by 2030 and the company further benefits from cost
reductions in excess of our base-case forecast. We also assume greater adoption of autonomous driving
software and faster growth in the insurance business.
Risk and Uncertainty Seth Goldstein, CFA, Strategist, 19 Apr 2023

We assign Tesla a Very High Morningstar Uncertainty Rating as we see a wide range of potential
outcomes for the company.
The automotive market is highly cyclical and subject to sharp demand declines based on economic
conditions. As the EV market leader, Tesla is subject to growing competition from traditional automakers
and new entrants. As new lower-priced EVs begin selling, Tesla may be forced to continue to cut prices,
reducing the firm's industry-leading profits. With more EV choices, consumers may view Tesla less
favorably. The firm is investing heavily in capacity expansions that carry the risk of delays and cost
overruns. The company is also investing in R&D in an attempt to maintain its technological advantage
with no guarantee these investments will bear fruit. Tesla’s CEO owns a little over 20% of the company's
stock and uses it as collateral for personal loans, which raises the risk of a large sale to repay debt.
Tesla faces environmental, social, and governance risks. As an automaker, Tesla is subject to potential
product defects that could result in recalls, including its autonomous driving software. We see a
moderate impact should this occur. Another risk involves employee retention. If Tesla is unable to retain
key employees, such as CEO Elon Musk, its favorable brand image could decline. Should the company
not be able to retain production line employees, it could see delays. We see a low probability but
moderate materiality for both risks.
Additional ESG risks include potential patent litigation as the company relies on new technology to
improve its EVs and energy storage systems. We see a low probability but moderate materiality should
this occur. Tesla may also face regulatory issues in some U.S. states due to laws that require
automakers and dealers to be separate. We see a moderate probability but low materiality.
Capital Allocation Seth Goldstein, CFA, Strategist, 19 Apr 2023

We award Tesla an Exemplary capital allocation rating based on our framework that assesses its
balance sheet, investment decisions, and shareholder distributions.
We rate the balance sheet as sound. Tesla’s revenue is subject to high cyclicality, and the majority of
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the company’s debt and financial lease obligations are due within the next three years. However, with a
healthy balance sheet and cash exceeding total debt, Tesla should be able to easily meet its financial
obligations.
We view management's investments as exceptional. Tesla’s aspiration is to increase its EV volume from
a little over 1.3 million vehicles in 2022 to 20 million by 2030. To do so, the company built new factories
around the world, including in China, the EU, and U.S. Given strong consumer demand, we think the
capacity expansion plans make sense. We are also in favor of the company’s focus on reducing its
manufacturing costs on a per unit basis while investing to maintain its technological advantage. To
reduce costs, Tesla makes its own batteries, with plans to increase its own battery cell production from
an annual capacity of 100 gigawatt-hours in 2022 to 3 terawatt-hours by 2030. The battery will also be
incorporated into the structural design of the EV. Tesla’s battery improvements aim to enable a 56%
reduction in the cost per kWh, a 54% range increase, and a 69% reduction in investment per GWh.
We are in favor of the focus on reducing costs, as this should enable Tesla to keep its cost advantage
intact as large legacy automakers electrify further this decade. Reduced manufacturing costs should
enable Tesla to increase profit margins for its existing vehicles and produce an affordable sedan and
SUV in the future at a profitable level. We also think management is smart to look at adding ancillary
revenue streams such as selling insurance and autonomous driving software, both of which can
increase total customer spending.
We see shareholder distributions as appropriate. Tesla does not pay a dividend and to date has not
repurchased shares. Instead, it has used the capital markets to issue stock, most recently at value-
accretive levels. Given that Tesla is investing heavily in expanding its vehicle and battery production
capacity, we think the best use of capital is internal reinvestment to fund organic growth rather than
shareholder distribution. However, with solid free cash flow generation and little debt, management
said it is considering beginning to repurchase shares. Given that Tesla is able to fully fund its growth
plans through operating cash flor generation, we think share repurchases make sense with excess cash
flow.
Elon Musk has been Tesla’s CEO since 2008. Before cofounding Tesla, he cofounded and sold the
internet payment system PayPal. Musk has also cofounded SpaceX, Neuralink, and The Boring Co.
Further, Musk purchased Twitter in late 2022 and is currently the CEO. For Tesla, Musk’s compensation
comes entirely from stock awards. Under the plan created in 2018, Musk can earn up to 101.3 million
stock option awards (split adjusted, at a price of $70.01 per share) in 12 tranches based on meeting
revenue, EBITDA, and market capitalization targets, which Musk has largely completed. For future
compensation awards, while we understand the revenue and EBITDA targets for a growing company,
we would prefer a return on invested capital metric be added.
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Tom Zhu, Tesla's vice president of greater China, was recently appointed to also oversee the company's
U.S. vehicle assembly operations as well as overseeing sales operations in the U.S. and Europe. With
Zhu's expanded role, he is now the second-highest ranking executive at Tesla after CEO Elon Musk.
Given's Musk's large responsibilities outside of Tesla, we think the move makes sense as Zhu can be the
key decision-maker for most of Tesla's operations. Additionally, the move may set up Zhu to ultimately
move into the CEO role at Tesla if Elon Musk were to retire.
Analyst Notes Archive
Tesla: Record Deliveries Keep Company on Track for Solid Growth in 2023 Seth Goldstein, CFA,
Strategist, 3 Jul 2023
We maintain our $215 per-share fair value estimate and narrow moat rating for Tesla following the
company's second-quarter deliveries release. During the quarter, Tesla delivered 466,140 vehicles, a
new record high, and more than 80% above the prior-year quarter. This puts Tesla on track to meet our
2023 annual deliveries forecast of a little over 1.8 million vehicles, which is a little less than 40% growth
for the year and we maintain our outlook.
At current prices, we view Tesla shares as slightly overvalued with the stock trading a little more than
20% above our fair value estimate, but in 3-star territory. Accordingly, we recommend investors wait for
a pullback in shares and for the stock to trade below our fair value estimate and offer a margin of safety
before considering an entry point.
Tesla plans to release its second-quarter results on July 19. We will be focusing on the automotive
segment's gross profit margin. During the quarter, Tesla implemented a cut to prices to drive volume
growth, similar to the prior two quarters. As a result of the prior price cuts, the automotive gross profit
margin fell to a multiyear low in the first quarter. However, lower prices should be at least partially
offset by lower unit production costs as a result of the continued production ramp-up of the Austin,
Texas, and Berlin, Germany, factories and falling raw materials costs.
We forecast 2023 automotive gross profit margins will reach the low-20% range, before improving back
to 29% by 2030, which was the 2021-22 average. While the margin decline was driven by price cuts, we
expect that much of the margin improvement will come from lower unit production costs. Tesla aims to
reduce unit production costs by 50% as the company outlined on its investor day in March. This should
drive a margin improvement, particularly in the Model 3 and Y vehicles, partially offset by the eventual
sale of lower-priced vehicles, which will likely generate lower profit margins.
Tesla: Opening Supercharging Network to GM and Ford Positive for Industry but Neutral for
Company Seth Goldstein, CFA, Strategist, 9 Jun 2023
Tesla and General Motors announced a charging partnership where GM integrates Tesla's North
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American Charging Standard, or NACS, connector starting in 2024, which will allow GM EV drivers to
charge at 12,000 Tesla Superchargers throughout North America. Tesla also recently announced a
similar charging partnership with Ford to allow Ford EV drivers to charge at Tesla Superchargers. After
reviewing these announcements, we see no reason to change our $215 per share fair value estimate for
Tesla. Our narrow moat rating is also unchanged.
Tesla shares were up 6% at the time of writing as the market reacted favorably to the news. However,
at current prices, we view Tesla shares as fairly valued with the stock trading a little more than 15%
above our fair value estimate but in 3-star territory. Accordingly, we recommend investors wait for a
pullback in shares and for shares to offer a discount to our fair value estimate before considering an
entry point.
We view the charging partnerships as positive for U.S. electric vehicle adoption. By unifying EV fast
charging under the NACS, EV drivers would be able to charge at any fast charger, similar to gasoline car
drivers being able to fill up at any gas station. We think other automakers will likely follow suit and the
NACS will become standard throughout North America. Combined with more fast chargers being built
along highways, this should alleviate the largest barrier to EV adoption for U.S. consumers—finding a
public charger.
While this is positive for the industry, we see less of a positive impact to Tesla. Arguably, access to
Tesla's fast charging network could be considered an advantage that would cause a consumer to
choose a Tesla over other EVs. However, we don't see the news as negative, either, as we think Tesla's
technological and cost advantages still remain in place—which underpin our narrow moat rating—and
will allow deliveries to grow to 5 million vehicles by 2030, up from 1.3 million in 2022.
Tesla: Twitter Overhang on Shares Dissipating as Musk Names New Twitter CEO Seth Goldstein,
CFA, Strategist, 11 May 2023
Our outlook for Tesla is unchanged after CEO Elon Musk, who is also the CEO of Twitter after acquiring
the company late last year, announced that he hired a new CEO to lead Twitter. Accordingly, we
maintain our $215 per share fair value estimate and narrow moat rating for Tesla.
Tesla shares went from flat to finish up 2% May 11 following Musk's tweet announcing that a new CEO
at Twitter would start in around six weeks. At current prices, we view Tesla shares as undervalued with
the stock trading in 4-star territory and roughly 20% below our fair value estimate.
For Tesla investors, Musk's purchase of Twitter followed by him becoming its CEO has been an overhang
on the stock with two key risks. First, Musk sold Tesla shares multiple times last year, with at least some
of the proceeds being used to help finance the purchase of Twitter to help ensure Twitter had enough
cash to maintain operations. In March, Musk said Twitter could be break even on a cash flow basis in
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the second quarter of 2023. If Twitter is able to generate positive cash flow, this reduces the risk that
Musk would have to sell additional Tesla shares. Second, we think investors worried that Musk being
CEO of Twitter would cause him to lose focus on Tesla. Assuming the new CEO starts at Twitter
according to Musk's timeline, this overhang on Tesla's stock would be removed.
With the Twitter overhang on Tesla somewhat dissipating, we think the market will focus on Tesla's
ability to grow volumes and restore profits. Tesla's price cuts helped the company drive record deliveries
but weighed on profits, with automotive gross margins falling to 21% in the first quarter from 33% in the
first quarter of 2022. We expect Tesla's automotive gross profits will remain in the low-20% range in the
near term but forecast a long-term expansion back to the 29% average of the past two years by 2030 as
Tesla works to implement the cost-reduction plans it laid out at its investor day in March.
Tesla Earnings: Stock Dives After Management's Price Cuts Weigh on Profit Margins Seth Goldstein,
CFA, Strategist, 20 Apr 2023
We reduce our Tesla fair value estimate to $215 per share from $225 to reflect higher near-term margin
compression as the company is pursuing a volume-over-unit profit strategy in the near term by cutting
prices to spur demand. We reduced our near-term automotive profit margin forecast. Separately, we
increased our outlook for the energy generation and storage segment to reflect higher growth as Tesla
plans to build a new facility in China. Our narrow moat rating is unchanged as Tesla should still
generate excess returns on invested capital even in a lower-price environment.
Tesla shares were down 6% in afterhours trading as the market reacted negatively to the company's
first-quarter results, which saw automotive gross margins fall 480 basis points sequentially from 25.9%
in the fourth quarter of 2022 to 21.1% this quarter. The market may also be reacting to management's
cautious commentary that suggests lower margins are likely to remain, at least through 2023.
At current prices, we view Tesla shares as undervalued, with the stock trading more than 20% below
our updated fair value estimate. While we reduced our near-term outlook, our long-term view is
unchanged. We think Tesla's plan to reduce costs will drive long-term profit margin expansion. We
continue to forecast roughly 5 million deliveries in 2030 with automotive gross profit margins recovering
from the low-20% range this year to 29%, which is in line with the margins generated over the past two
years.
Part of our view that Tesla will see long-term margin expansion comes from the company's operating
leverage as revenue should grow faster than overhead expenses. This held true during the first quarter.
Revenue grew 24% versus the prior-year quarter while selling, general, and administrative, and research
and development expenses were roughly flat. Over the long term, we expect overhead expenses will
decline as a percentage of revenue driving operating margin expansion.
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TM TM
21 Jul 2023 5 Jul 2023 05:00, UTC
21 Jul 2023 20 Apr 2023 01:04, UTC
Tesla Posts Solid First-Quarter Deliveries; Maintaining $225 FVE as Shares Fairly Valued Seth
Goldstein, CFA, Strategist, 3 Apr 2023
Tesla announced first-quarter deliveries of 422,875 vehicles, which puts the firm in line to meet our 2023
total deliveries forecast of 1.81 million vehicles. Accordingly, we see no reason to change our $225 per
share fair value estimate for Tesla. Our narrow-moat rating is also unchanged.
Tesla shares were down over 3% in pre-market trading as the market reacted negatively to the
deliveries number. At current prices, we view Tesla shares as fairly valued with the stock trading in 3-
star territory. While shares are a little more than 10% below our fair value estimate, we recommend
investors wait for a larger pullback that would offer a greater margin of safety before considering an
entry point.
Tesla's first-quarter deliveries were an all-time high for the company, up 36% year on year versus the
prior-year quarter. Some of the growth was likely driven by the price cuts implemented at the start of
the year. While the lower prices had the desired effect of growing demand, they will reduce the per-
vehicle profitability, weighing on margins, partially offset by cost reductions from the continued ramp-
up of the two new factories. We expect Tesla's profit margins will contract in 2023. We forecast
companywide operating margins will shrink 260 basis points from 16.8% in 2022 to 14.2%.
When Tesla reports financial results later this month, we will look for management's plan in response to
the U.S. Treasury Department's guidance on the Inflation Reduction Act. Based on the updated results,
the least expensive version of the Model 3 will likely be ineligible for the $7,500 tax credit as the battery
is produced in China. This has the potential to weigh on Tesla's sales growth in the U.S. as the lack of a
credit may turn some consumers away. This will likely keep Tesla's sales volumes toward the lower end
of management's 2023 guidance for 1.8-2 million vehicles.
Raising Tesla FVE to $225 on Improved Outlook Following Investor Day; Shares Slightly Undervalued
Seth Goldstein, CFA, Strategist, 2 Mar 2023
After updating our outlook after Tesla's investor day, we raise our fair value estimate to $225 per share
from $220. The increase is due to our improved long-term outlook for the company's free cash flow
generation. Our narrow-moat rating is unchanged.
Tesla shares were down nearly 6% in after-hours trading. At current prices, we view Tesla shares as
slightly undervalued, with the stock trading roughly 15% below our fair value estimate. We attribute the
selloff to the market's disappointment at the lack of details surrounding the new affordable vehicle
platform as well as the lack of publicly stated long-term financial targets. We agree with the sentiment
that the entry-level vehicle is not likely to be in commercial production over the next couple of years,
which should lead to lower deliveries and profits in the medium term. However, we forecast Tesla will
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TM TM
21 Jul 2023 5 Jul 2023 05:00, UTC
21 Jul 2023 20 Apr 2023 01:04, UTC
eventually bring this new model into production, driving long-term deliveries growth.
In our view, the more important takeaway from the event is that Tesla's ability to scale should drive
higher long-term free cash flow generation. Tesla's software-focused operation, including using AI for
much of its R&D, should drive long-term operating leverage, leading to margin expansion. The
company's plan to simplify its manufacturing process should reduce its capital expenditure intensity
over time. As a result, we reduced our long-term assumptions for overhead expenses and capital
expenditures.
Additionally, we increased our outlook for the energy generation and storage business as we think
Tesla's software, including virtual machine mode and autobidder, will drive higher sales as it will allow
excess cost savings versus the installation of solar and a battery alone.
Finally, during the event, Tesla reiterated its long-term plan to sell 20 million vehicles per year. Our
vehicle deliveries forecast is unchanged at a little more than 5 million deliveries in 2030. K
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Competitors Price vs. Fair Value
Ford Motor Co F
Fair Value: 19.00

22 May 2023 23:40, UTC
20
Last Close: 13.93
15 Over Valued
Under Valued
10
0
Analytics
2018 2019 2020 2021 2022 YTD
0.64 0.78 0.68 1.04 0.48 0.73 Price/Fair Value
-32.91 29.41 -3.87 137.43 -41.60 27.94 Total Return %
Morningstar Rating
Total Return % as of 21 Jul 2023. Last Close as of 21 Jul 2023. Fair Value as of 22 May 2023 23:40, UTC.
Bayerische Motoren Werke AG BMW
Fair Value: 157.00

28 Apr 2023 01:55, UTC
200
Last Close: 107.58
150 Over Valued
Under Valued
100
50
0
Analytics
2018 2019 2020 2021 2022 YTD
0.60 0.62 0.60 0.66 0.55 0.69 Price/Fair Value
-13.97 8.40 2.17 25.14 -0.95 39.34 Total Return %
Morningstar Rating
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Volkswagen AG Vorz-Inhaber-Akt ohne Stimmrecht VOW3
Fair Value: 338.00

25 Apr 2023 19:44, UTC
400
Last Close: 124.92
300 Over Valued
Under Valued
200
100
0
2018 2019 2020 2021 2022 YTD Analytics
0.60 0.73 0.62 0.52 0.35 0.37 Price/Fair Value

-14.16 30.36 -10.76 18.79 -20.53 14.09 Total Return %
Morningstar Rating
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TM TM
21 Jul 2023 5 Jul 2023 05:00, UTC
21 Jul 2023 20 Apr 2023 01:04, UTC
Morningstar Historical Summary

Financials as of 31 Mar 2023
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD TTM
Revenue (USD Bil) 2.01 3.20 4.05 7.00 11.76 21.46 24.58 31.54 53.82 81.46 23.33 86.04
Revenue Growth % 387 58.9 26.5 73.0 68.0 82.5 14.5 28.3 70.7 51.3 24.4 38.3
EBITDA (USD Bil) 0.07 0.05 -0.33 0.40 -0.10 1.56 2.17 4.22 9.63 17.66 3.88 16.97
EBITDA Margin % 3.4 1.5 -8.3 5.7 -0.9 7.3 8.9 13.4 17.9 21.7 16.6 19.7
Operating Income (USD Bil) -0.06 -0.19 -0.72 -0.67 -1.63 -0.25 0.08 1.99 6.50 13.83 2.66 12.89
Operating Margin % -3.0 -5.8 -17.7 -9.5 -13.9 -1.2 0.3 6.3 12.1 17.0 11.4 15.0
Net Income (USD Bil) -0.07 -0.29 -0.89 -0.67 -1.96 -0.98 -0.86 0.72 5.52 12.58 2.51 11.78
Net Margin % -3.7 -9.2 -22.0 -9.6 -16.7 -4.6 -3.5 2.3 10.3 15.5 10.8 13.7
Diluted Shares Outstanding (Mil) 1,791 1,868 1,923 2,163 2,490 2,559 2,661 3,249 3,386 3,475 3,468 3,474
Diluted Earnings Per Share (USD) -0.04 -0.16 -0.46 -0.31 -0.79 -0.38 -0.33 0.21 1.63 3.62 0.73 3.40
Dividends Per Share (USD) — — — — — — — — — — — —
Valuation as of 30 Jun 2023

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Recent Qtr TTM
Price/Sales 10.3 9.6 8.0 5.0 4.7 3.2 3.0 25.5 25.6 5.7 10.6 10.6
Price/Earnings -119.0 -137.0 -45.0 -33.4 -36.5 -31.4 -89.3 1,428.6 344.8 38.2 76.9 76.9
Price/Cash Flow 196.1 175.4 -52.4 100.0 -49.8 41.2 33.1 163.9 120.5 26.5 68.5 68.5
Dividend Yield % — — — — — — — — — — — —
Price/Book 32.8 29.2 24.0 12.9 11.2 12.7 12.5 42.2 40.3 9.8 17.3 17.3
EV/EBITDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Operating Performance / Profitability as of 31 Mar 2023
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD TTM
ROA % -4.2 -7.1 -12.8 -4.4 -7.6 -3.3 -2.7 1.7 9.7 17.4 3.0 15.4
ROE % -18.7 -37.3 -89.1 -23.1 -43.7 -21.3 -14.9 5.0 21.1 33.6 5.4 28.7
ROIC % -5.7 -9.8 -22.2 -6.5 -10.2 -2.9 -2.0 4.4 15.6 27.9 4.5 24.2
Asset Turnover 1.1 0.8 0.6 0.5 0.5 0.7 0.8 0.7 0.9 1.1 0.3 1.1
Financial Leverage
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Recent Qtr TTM
Debt/Capital % 47.3 67.3 67.7 60.9 72.5 69.3 65.6 32.8 18.6 7.8 7.1 —
Equity/Assets % 27.6 15.6 13.4 21.0 14.8 16.6 19.3 42.6 48.6 54.3 55.3 —
Total Debt/EBITDA 9.0 51.6 -8.7 21.5 -118.9 8.9 6.7 3.1 0.9 0.3 1.4 —
EBITDA/Interest Expense 2.1 0.5 -2.8 2.0 -0.2 2.4 3.2 5.6 25.9 92.4 133.6 106.7
Morningstar Analyst Historical/Forecast Summary as of 19 Jul 2023

Financials Estimates Forward Valuation Estimates
2021 2022 2023 2024 2025
Fiscal Year, ends 12-31-2022 2021 2022 2023 2024 2025
Price/Sales 20.3 4.8 8.3 6.3 5.4
Revenue (USD Mil) 53,823 81,462 99,819 130,798 153,087 Price/Earnings 52.0 30.3 77.9 55.9 43.2
Revenue Growth % 70.7 51.3 22.5 31.0 17.0 Price/Cash Flow 217.7 51.4 102.9 65.3 44.7
EBITDA (USD Mil) 11,621 19,186 17,294 24,445 31,500 Dividend Yield % — — — — —
EBITDA Margin % 21.6 23.5 17.3 18.7 20.6 Price/Book 13.2 9.6 16.6 13.2 10.4
EV/EBITDA 93.4 19.5 46.5 32.9 25.5
Operating Income (USD Mil) 6,496 13,832 9,565 15,338 21,187
Operating Margin % 12.1 17.0 9.6 11.7 13.8
Net Income (USD Mil) 7,654 14,143 11,606 16,145 20,909
Net Margin % 14.2 17.4 11.6 12.3 13.7
Diluted Shares Outstanding (Mil) 1,128 3,471 3,471 3,471 3,471
Diluted Earnings Per Share(USD) 6.78 4.07 3.34 4.65 6.02
Dividends Per Share(USD) 0.00 0.00 0.00 0.00 0.00
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TM TM
21 Jul 2023 5 Jul 2023 05:00, UTC
21 Jul 2023 20 Apr 2023 01:04, UTC
ESG Risk Rating Breakdown
Exposure Subject Subindustry (48.0) u Exposure represents a company’s vulnerability to ESG

Company Exposure1 41.3 risks driven by their business model
41.3
u Exposure is assessed at the Subindustry level and then
– Manageable Risk 39.5 Medium
2 0 55+ specified at the company level
Unmanageable Risk 1.8
Low Medium High u Scoring ranges from 0-55+ with categories of low, me-
dium, and high-risk exposure
Management
u Management measures a company ’s ability to manage
Manageable Risk 39.5 ESG risks through its commitments and actions
35.6%
– Managed Risk3 14.1 Average
u Management assesses a company's efficiency on ESG
Management Gap4 25.4 100 0 programs, practices, and policies

Strong Average Weak u Management score ranges from 0-100% showing how
Overall Unmanaged Risk 27.2 much manageable risk a company is managing
ESG Risk Rating ESG Risk Rating Assessment5

27.25
Medium
Negligible Low Medium High Severe ESG Risk Rating is of Jul 05, 2023. Highest Controversy Level is as of Jul 08,
2023. Sustainalytics Subindustry: Automobiles. Sustainalytics provides
ESG Risk Ratings measure the degree to which a company’s value is impacted by environmental, social, and governance Morningstar with company ESG ratings and metrics on a monthly basis and
risks, by evaluating the company’s ability to manage the ESG risks it faces. as such, the ratings in Morningstar may not necessarily reflect current
Sustainalytics’ scores for the company. For the most up to date rating and
1. A company's Exposure to material ESG issues 2. Unmanageable Risk refers to risks that are inherent to a particular business model that cannot be managed by more information, please visit: sustainalytics.com/esg-ratings/.
programs or initiatives 3. Managed Risk = Manageable Risk multiplied by a Management score of 35.6% 4. Management Gap assesses risks that are not
managed, but are considered manageable 5. ESG Risk Rating Assessment = Overall Unmanaged Risk = Management Gap plus Unmanageable Risk
Peer Analysis 05 Jul 2023 Peers are selected from the company's Sustainalytics-defined Subindustry and are displayed based on the closest market cap values
Company Name Exposure Management ESG Risk Rating
Tesla Inc 41.3 | Medium 0 55+ 35.6 | Average 100 0 27.2 | Medium 0 40+
Ford Motor Co 49.5 | Medium 0 55+ 57.0 | Strong 100 0 22.3 | Medium 0 40+
Volkswagen AG 47.0 | Medium 0 55+ 45.8 | Average 100 0 26.0 | Medium 0 40+
Bayerische Motoren Werke AG 50.1 | Medium 0 55+ 47.2 | Average 100 0 27.4 | Medium 0 40+
General Motors Co 54.4 | Medium 0 55+ 49.3 | Average 100 0 28.5 | Medium 0 40+
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Appendix
Historical Morningstar Rating
Tesla Inc TSLA 21 Jul 2023 21:20, UTC
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
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Ford Motor Co F 21 Jul 2023 21:20, UTC
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Bayerische Motoren Werke AG BMW 20 Jul 2023 23:58, UTC
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Volkswagen AG Vorz-Inhaber-Akt ohne Stimmrecht VOW3 20 Jul 2023 23:58, UTC
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Overview turns on invested capital (or ROIC) over and above our es- Stage I: Explicit Forecast
At the heart of our valuation system is a detailed projec- timate of a firm’s cost of capital, or weighted average
In this stage, which can last five to 10 years, analysts
tion of a company ’s future cash flows, resulting from our cost of capital (or WACC). Without a moat, profits are
make full financial statement forecasts, including items
analysts’ research. Analysts create custom industry and more susceptible to competition. We have identified five
such as revenue, profit margins, tax rates, changes in
company assumptions to feed income statement, balance sources of economic moats: intangible assets, switching
workingcapital accounts, and capital spending. Based on
sheet, and capital investment assumptions into our glob- costs, network effect, cost advantage, and efficient scale.
these projections, we calculate earnings before interest,
ally standardized, proprietary discounted cash flow, or after taxes (EBI) and the net new investment (NNI) to de-
DCF, modeling templates. We use scenario analysis, inde- Companies with a narrow moat are those we believe are
rive our annual free cash flow forecast.
pth competitive advantage analysis, and a variety of other more likely than not to achieve normalized excess returns
analytical tools to augment this process. Moreover, we for at least the next 10 years. Wide-moat companies are Stage II: Fade
think analyzing valuation through discounted cash flows those in which we have very high confidence that excess The second stage of our model is the period it will take
presents a better lens for viewing cyclical companies, returns will remain for 10 years, with excess returns more the company ’s return on new invested capital—the re-
high-growth firms, businesses with finite lives (e.g., likely than not to remain for at least 20 years. The longer turn on capital of the next dollar invested (“RONIC”)—to
mines), or companies expected to generate negative a firm generates economic profits, the higher its intrinsic decline (or rise) to its cost of capital. During the Stage II
earnings over the next few years. That said, we don’t dis- value. We believe low-quality, no-moat companies will period, we use a formula to approximate cash flows in
miss multiples altogether but rather use them as support- see their normalized returns gravitate toward the firm’s lieu of explicitly modeling the income statement, balance
ing cross-checks for our DCF-based fair value estimates. cost of capital more quickly than companies with moats. sheet, and cash flow statement as we do in Stage I. The
We also acknowledge that DCF models offer their own length of the second stage depends on the strength of
challenges (including a potential proliferation of estim- When considering a company's moat, we also assess the company’s economic moat. We forecast this period to
ated inputs and the possibility that the method may miss whether there is a substantial threat of value destruction, last anywhere from one year (for companies with no eco-
shortterm market-price movements), but we believe these stemming from risks related to ESG, industry disruption, nomic moat) to 10–15 years or more (for wide-moat com-
negatives are mitigated by deep analysis and our financial health, or other idiosyncratic issues. In this con- panies). During this period, cash flows are forecast using
longterm approach. text, a risk is considered potentially value destructive if its four assumptions: an average growth rate for EBI over the
occurrence would eliminate a firm’s economic profit on a period, a normalized investment rate, average return on
Morningstar’s equity research group (” we,” “our”) be- cumulative or midcycle basis. If we deem the probability new invested capital (RONIC), and the number of years
lieves that a company’s intrinsic worth results from the of occurrence sufficiently high, we would not characterize until perpetuity, when excess returns cease. The invest-
future cash flows it can generate. The Morningstar Rating the company as possessing an economic moat. ment rate and return on new invested capital decline un-
for stocks identifies stocks trading at a discount or premi- til a perpetuity value is calculated. In the case of firms
um to their intrinsic worth—or fair value estimate, in To assess the sustainability of excess profits, analysts per- that do not earn their cost of capital, we assume marginal
Morningstar terminology. Five-star stocks sell for the form ongoing assessments of the moat trend. A firm’s ROICs rise to the firm’s cost of capital (usually attribut-
biggest risk adjusted discount to their fair values, where- moat trend is positive in cases where we think its sources able to less reinvestment), and we may truncate the
as 1-star stocks trade at premiums to their intrinsic worth. of competitive advantage are growing stronger; stable second stage.
where we don’t anticipate changes to competitive ad-
Four key components drive the Morningstar rating: (1) our vantages over the next several years; or negative when Stage III: Perpetuity
assessment of the firm’s economic moat, (2) our estimate we see signs of deterioration. Once a company’s marginal ROIC hits its cost of capital,
of the stock’s fair value, (3) our uncertainty around that we calculate a continuing value, using a standard per-
fair value estimate and (4) the current market price. This 2. Estimated Fair Value petuity formula. At perpetuity, we assume that any
process ultimately culminates in our singlepoint star rat- Combining our analysts’ financial forecasts with the growth or decline or investment in the business neither
ing. firm’s economic moat helps us assess how long returns creates nor destroys value and that any new investment
on invested capital are likely to exceed the firm’s cost of provides a return in line with estimated WACC.
1. Economic Moat capital. Returns of firms with a wide economic moat rat-
The concept of an economic moat plays a vital role not ing are assumed to fade to the perpetuity period over a Because a dollar earned today is worth more than a dollar
only in our qualitative assessment of a firm’s long-term longer period of time than the returns of narrow-moat earned tomorrow, we discount our projections of cash
investment potential, but also in the actual calculation of firms, and both will fade slower than no-moat firms, in- flows in stages I, II, and III to arrive at a total present
our fair value estimates. An economic moat is a structural creasing our estimate of their intrinsic value. value of expected future cash flows. Because we are
feature that allows a firm to sustain excess profits over a modeling free cash flow to the firm—representing cash
long period of time. We define economic profits as re- Our model is divided into three distinct stages: available to provide a return to all capital providers—we
discount future cash flows using the WACC, which is a
Morningstar Equity Research Star Rating Methodology weighted average of the costs of equity, debt, and pre-
ferred stock (and any other funding sources), using ex-
pected future proportionate long-term, market-value
weights.
3. Uncertainty Around That Fair Value Estimate

Morningstar’s Uncertainty Rating is designed to capture
the range of potential outcomes for a company ’s intrinsic
value. This rating is used to assign the margin of safety
ß
required before investing, which in turn explicitly drives Morningstar Equity Research Star Rating Methodology
our stock star rating system. The Uncertainty Rating is
aimed at identifying the confidence we should have in as-
signing a fair value estimate for a given stock.
Our Uncertainty Rating is meant to take into account any-

thing that can increase the potential dispersion of future
outcomes for the intrinsic value of a company, and any-
thing that can affect our ability to accurately predict
these outcomes. The rating begins with a suggested rat-
ing produced by a quantitative process based on the trail-
ing 12-month standard deviation of daily stock returns.
An analyst overlay is then applied, with analysts using
the suggested rating, historical rating data, and their own
knowledge of the company to inform them as they make
the final Uncertainty Rating decision. Ultimately, the rat-
ing decision rests with the analyst. Analysts take into ac-
count many characteristics when making their final de-
cision, including cyclical factors, operational and financial
factors such as leverage, company-specific events, ESG
risks, and anything else that might increase the potential
dispersion of future outcomes and our ability to estimate
those outcomes.
Our recommended margin of safety—the discount to fair

value demanded before we’d recommend buying or The market prices used in this analysis and noted in the individuals must consider their own specific investment
selling the stock—widens as our uncertainty of the es- report come from exchange on which the stock is listed goals, risk tolerance, tax situation, time horizon, income
timated value of the equity increases. The more uncertain which we believe is a reliable source. needs, and complete investment portfolio, among other
we are about the potential dispersion of outcomes, the factors.
greater the discount we require relative to our estimate of For more details about our methodology, please go to
the value of the firm before we would recommend the https://shareholders.morningstar.com The Morningstar Star Ratings for stocks are defined be-
purchase of the shares. In addition, the Uncertainty Rat- low:
ing provides guidance in portfolio construction based on QQQQQ We believe appreciation beyond a fair risk ad-
Morningstar Star Rating for Stocks
risk tolerance. justed return is highly likely over a multiyear time frame.
Once we determine the fair value estimate of a stock, we
compare it with the stock’s current market price on a Scenario analysis developed by our analysts indicates
Our Uncertainty Ratings are: Low, Medium, High, Very
daily basis, and the star rating is automatically re-calcu- that the current market price represents an excessively
High, and Extreme.
lated at the market close on every day the market on pessimistic outlook, limiting downside risk and maximiz-
which the stock is listed is open. Our analysts keep close ing upside potential.
Margin of Safety
tabs on the companies they follow, and, based on thor-
Qualitative Analysis
QRating ough and ongoing analysis, raise or lower their fair value QQQQ We believe appreciation beyond a fair risk-ad-
Uncertainty Ratings QQQQQRating
estimates as warranted. justed return is likely.
Low 20% Discount 25% Premium
Medium 30% Discount 35% Premium QQQ Indicates our belief that investors are likely to re-
Please note, there is no predefined distribution of stars.
High 40% Discount 55% Premium ceive a fair risk-adjusted return (approximately cost of
That is, the percentage of stocks that earn 5 stars can
Very High 50% Discount 75% Premium equity).
fluctuate daily, so the star ratings, in the aggregate, can
Extreme 75% Discount 300% Premium
serve as a gauge of the broader market’s valuation. When
there are many 5-star stocks, the stock market as a whole QQ We believe investors are likely to receive a less than
Our uncertainty rating is based on the interquartile range, fair risk-adjusted return.
is more undervalued, in our opinion, than when very few
or the middle 50% of potential outcomes, covering the
companies garner our highest rating.
25th percentile–75th percentile. This means that when a Q Indicates a high probability of undesirable risk-adjus-
stock hits 5 stars, we expect there is a 75% chance that ted returns from the current market price over a multiyear
We expect that if our base-case assumptions are true the
the intrinsic value of that stock lies above the current time frame, based on our analysis. Scenario analysis by
market price will converge on our fair value estimate over
market price. Similarly, when a stock hits 1 star, we ex- our analysts indicates that the market is pricing in an ex-
time generally within three years (although it is im-
pect there is a 75% chance that the intrinsic value of that cessively optimistic outlook, limiting upside potential and
possible to predict the exact time frame in which market
stock lies below the current market price. leaving the investor exposed to Capital loss.
prices may adjust).
4. Market Price Other Definitions

Our star ratings are guideposts to a broad audience and
ß
Last Price: Price of the stock as of the close of the mar- which company’s economic value at risk is driven by en-
This report is for informational purposes only and has no
ket of the last trading day before date of the report. vironment, social and governance (ESG) factors.
regard to the specific investment objectives, financial
situation or particular needs of any specific recipient. This
Capital Allocation Rating: Our Capital Allocation (or Sustainalytics analyzes over 1,300 data points to assess a
publication is intended to provide information to assist in-
Stewardship) Rating represents our assessment of the company’s exposure to and management of ESG risks. In
stitutional investors in making their own investment de-
quality of management’s capital allocation, with particu- other words, ESG Risk Ratings measures a company’s un-
cisions, not to provide investment advice to any specific
lar emphasis on the firm’s balance sheet, investments, managed ESG Risks represented as a quantitative score.
investor. Therefore, investments discussed and recom-
and shareholder distributions. Analysts consider compan- Unmanaged Risk is measured on an open-ended scale
mendations made herein may not be suitable for all in-
ies’ investment strategy and valuation, balance sheet starting at zero (no risk) with lower scores representing
vestors: recipients must exercise their own independent
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judgment as to the suitability of such investments and re-
Corporate governance factors are only considered if they aged ESG Risk score is below 50.
commendations in the light of their own investment ob-
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tion.
tributions. Analysts assign one of three ratings: "Exem- grouped into one of five Risk Categories (negligible, low,
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able in the jurisdiction the recipient is located.
Capital Allocation (or Stewardship) analysis published pri- scale. Companies with Negligible Risk = 5 Globes, Low
or to Dec. 9, 2020, was determined using a different pro- Risk = 4, Medium Risk = 3 Globes, High Risk = 2 Globes,
Except as otherwise required by law or provided for in a
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Where this report is made available in a language other
or to Dec. 9, 2020, was determined using a different pro- value price.
than English and in the case of inconsistencies between
cess. Beyond investment strategy, financial leverage, and
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dividend and share buyback policies, analysts also con-
lish version will control and supersede any ambiguities
sidered execution, compensation, related party transac- General Disclosure associated with any part or section of a report that has
tions, and accounting practices in the rating.
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cipients accessing this report may only use it in the coun- Morningstar, Inc., or the Equity Research Group guaran-
Sustainalytics ESG Risk Rating Assessment:The ESG
try in which the Morningstar distributor is based. Unless tees the accuracy of the translations.
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Morningstar company.
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Morningstar Equity Analyst Report | Report as of 21 Jul 2023 22:21, UTC | Reporting Currency: USD | Trading Currency: USD

| Exchange: NASDAQ - ALL MARKETS Page 1 of 23

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Price vs. Fair Value

Last Close: 260.02

300 Over Valued

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Bulls Say Seth Goldstein, CFA, Strategist, 20 Jul 2023

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Last Close Fair Value Fair Value Fair Value

Bears Say Seth Goldstein, CFA, Strategist, 20 Jul 2023

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Economic Moat Seth Goldstein, CFA, Strategist, 19 Apr 2023

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Risk and Uncertainty Seth Goldstein, CFA, Strategist, 19 Apr 2023

Capital Allocation Seth Goldstein, CFA, Strategist, 19 Apr 2023

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Analyst Notes Archive

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Competitors Price vs. Fair Value

Fair Value: 19.00

Bayerische Motoren Werke AG BMW

Fair Value: 157.00

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Volkswagen AG Vorz-Inhaber-Akt ohne Stimmrecht VOW3

Fair Value: 338.00

0.60 0.73 0.62 0.52 0.35 0.37 Price/Fair Value

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

Morningstar Historical Summary

Valuation as of 30 Jun 2023

Morningstar Analyst Historical/Forecast Summary as of 19 Jul 2023

Tesla Inc TSLA QQQ 21 Jul 2023 21:20, UTC

ESG Risk Rating Breakdown

Exposure Subject Subindustry (48.0) u Exposure represents a company’s vulnerability to ESG

dium, and high-risk exposure

Management Gap4 25.4 100 0 programs, practices, and policies

Overall Unmanaged Risk 27.2 much manageable risk a company is managing

ESG Risk Rating ESG Risk Rating Assessment5

Ford Motor Co F 21 Jul 2023 21:20, UTC

Bayerische Motoren Werke AG BMW 20 Jul 2023 23:58, UTC

Volkswagen AG Vorz-Inhaber-Akt ohne Stimmrecht VOW3 20 Jul 2023 23:58, UTC

Research Methodology for Valuing Companies

3. Uncertainty Around That Fair Value Estimate

Research Methodology for Valuing Companies

Our Uncertainty Rating is meant to take into account any-

Our recommended margin of safety—the discount to fair

4. Market Price Other Definitions

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

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