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Stock Analyst Update

A Lot of Work Ahead for Tesla

Tesla is masterful at unveiling exciting products with top specifications, but the company has yet to actually make them perfectly in large volume.

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After incorporating the semi truck and surprise second-generation roadster that  Tesla (TSLA) unveiled Nov. 16, we are increasing our fair value estimate to $204 per share. Most of the new revenue put into our model was offset by increasing capital expenditure as we expect Tesla needs to accelerate its gigafactory and assembly plant expansion. We’ve never doubted Tesla’s ability to make exciting products with top specifications, but there’s a difference between unveiling something and then actually making it perfectly in large volume. Tesla has not perfected the latter yet, as its 2017 deliveries will only be in the low-100,000-units range. Tesla still must complete a mass rollout of the Model 3 and will perhaps next year unveil the Model Y crossover. Adding solar roof expansion to that along with a truck and roadster is a lot for the company to deal with and finance. We expect Tesla to remain heavily dependent on the capital markets; we still think it should do one large equity offering for $3 billion-$5 billion to take tail risk off the table in case the capital markets become less generous later.

We found both the truck and the roadster very impressive and better than any equivalent electric vehicle available today. The truck starts production in 2019 and the roadster in 2020. CEO Elon Musk says the truck will have 500 miles of range at highway speeds with all-in weight of 80,000 pounds, though it’s not clear how much of that weight is payload versus the truck itself. The Mercedes-Benz Urban eTruck has range up to 124 miles and is due in 2020, and Daimler Trucks’ Mitsubishi Fuso group announced a 217-mile model in October called the Vision One that could be feasible by 2021. Tesla guarantees its semi will not break down for 1 million miles and claims a payback period versus a diesel of two years based on $2.50/gallon for diesel and $0.25 per mile saved versus a diesel truck. We think the Tesla semi will cost nearly $200,000.

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David Whiston does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.