Tesla’s Q2 Progress: Affordable Vehicle Remains on Schedule for…

Tesla’s TSLA second-quarter results were largely in line with our view for the cadence of the year. Operating profits were down roughly 33% year over year due largely to lower average automotive selling prices, but up 37% sequentially versus the first quarter, driven by strong energy generation and storage profits and lower corporate expenses.

With our outlook largely unchanged, we maintain our $200 (CAD$ 275.73) per share fair value estimate. Our Narrow Moat rating also remains unchanged.

Tesla shares were down 8% in after-hours trading. We think the market is reacting to earnings coming in below FactSet consensus estimates, as well as management’s lack of details for two key growth projects: the affordable vehicle and the full self-driving. At current prices, we view Tesla shares as slightly overvalued, with the stock trading in 3-Star territory but a little over 10% above our fair value estimate.

Accordingly, we think investors should wait for a larger pullback and for shares to trade below our fair value estimate and offer a margin of safety before we would recommend an entry point.

With regard to the affordable vehicle, management declined to offer vehicle-specific details and said that Tesla would reserve these details for product rollout events. However, management did say the vehicle remains on track to begin production in 2025. In our view, Tesla maintaining the vehicle production timeline is the key takeaway.

As this vehicle is likely to be a less expensive version of the Model 3/Y platform, we doubt there will be as unique technology versus more premium product rollouts such as the Cybertruck, or the Roadster that should be launched in the coming years. As a result, we continue to view 2026 as the year when Tesla deliveries return to double-digit growth, driven by the affordable vehicle.

Key Morningstar Metrics For Tesla (TSLA) Shares

• Fair Value Estimate: USD 200.00
• Morningstar Rating: ★★★
• Economic Moat: Narrow
• Morningstar Uncertainty Rating: Very High
• Analyst: Seth Goldstein, CFA

For full self-driving and robotaxis, management set a date of October 10 for the robotaxi event. Management also said the rollout would be for FSD supervised, the current version of FSD to become FSD unsupervised, followed by an eventual robotaxi launch where all Tesla drivers could opt to have their cars join the robotaxi fleet.

In our view, even if the technology is ready, we think Tesla may face regulatory delays in approving robotaxis as regulators, or just approving limited rollouts, leading to little incremental revenue in the coming years. Regardless, as FSD software continues to improve, we view it as a selling point for consumers to choose a Tesla over other vehicles.

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