Tesla (TSLA) reported strong fourth-quarter and full-year vehicle delivery numbers on January 2. On the year, Tesla reported 936,172 vehicles delivered, which is up over 87% year on year versus 2020.

We have updated our model to incorporate higher 2021 sales volumes and have raised our outlook for 2022. We forecast Tesla will deliver a little over 1.5 million vehicles in 2022, which represents over 60% year-on-year growth. Separately, we have decreased our 2022 gross margin forecast for Tesla as we expect increased production costs associated with the opening of the two new production plants in Austin, Texas, (US) and in Berlin, Germany. Our long-term outlook is largely unchanged as we continue to expect Tesla's sales growth will slow.

Having updated our model to reflect these changes, we raise our Tesla fair value estimate to $700 per share from $680. Our narrow moat rating is unchanged. At current prices, we view Tesla shares as overvalued, with the stock trading in 2-star territory and more than 50% above our fair value estimate. The current stock price implies Tesla will become one of the top automakers globally in vehicles delivered by 2030. It also implies the company will expand profit margins through the reduction of unit production costs and widespread customer adoption of its high-margin autonomous driving software subscriptions. As such, we think much of the good news is already priced in as the stock trades closer to our bull case fair value estimate of $1,220 per share, versus our base case.

We also see potential downside catalysts for the stock. Falling profit margins from opening the new plants could weigh on market sentiment. Additionally, Tesla's Cybertruck delay will cause it to not be a first mover in the EV light truck market. Instead, the Cybertruck will immediately face competition from traditional automakers such as Ford and new entrants such as Rivian. As such, the Cybertruck could see slower initial sales, weighing on market sentiment.

Safety issue recall

Tesla has recalled around 475,000 of its electric vehicles (EVs) after identifying problems with their rear-view cameras and "front trunks". The recall, announced last week, supposedly affects around 356,309 Model 3 vehicles manufactured between 2017 and 2020, and around 119,009 Model S vehicles, documents filed by the firm with the US National Highway Traffic Safety Administration said.

The Model 3 is at higher risk of collision because of potential wear and tear on its rear-view camera cable caused by repeated opening and closing of its boot door, Tesla said. The Model S, meanwhile, has a "front trunk" that is liable to open at random blocking drivers' view of the road ahead. That said, the company says it is not aware of any actual crashes resulting from the defects.

The product recall is not the first production issue the EV maker has faced. According to Tesla's website, other voluntary recalls involving the Model X and Model S have ensured the motor bolt on its cars' steering assist and seat belts function properly.

Despite such teething issues, Tesla is now the fifth-largest stock in the US. The 18-year-old company, which went public in 2010, now has a market value that exceeds Warren Buffett’s Berkshire Hathaway, Johnson & Johnson and Home Depot.

Additional reporting from Ollie Smith, editor, Morningstar UK