Tesla: We see increased risk from Chinese retaliatory tariffs
We maintain our $250 fair value estimate for Tesla stock.
Mentioned: Tesla Inc (TSLA)
Key Morningstar metrics for Tesla
- Fair Value Estimate: $250
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Very High
China imposed a 34% tariff on all US imports in response to the US adding another 34% tariff on Chinese imports a day earlier. Tesla TSLA shares were down 9% at the time of writing in response.
Why it matters: Retaliatory tariffs by China on US imports further strain trade relations between the two countries. Tesla domestically produces nearly all of its vehicles sold in China; however, a trade dispute could have a negative impact on Tesla’s brand in China as it is a US company.
Tariffs on Chinese imports also threaten to raise prices for consumers. In turn, this could lead to consumers delaying purchases of more expensive items, such as Tesla’s luxury autos.
The bottom line: We maintain our $250 fair value estimate for narrow-moat Tesla. We see increased brand risk in China. However, with the launch of the new Model Y and recent approval for Tesla to sell its full self-driving autonomous vehicle software in China, we think Tesla can improve deliveries.
At current prices, we view Tesla shares as fairly valued, with the stock trading just below our fair value estimate and in 3-star territory. We recommend investors wait for a larger margin of safety before considering an entry point.
Coming up: Tesla reports earning later this month after reporting that first-quarter global deliveries were down 13% year over year. Tesla sales fell in its three key markets—China, Europe, and the US—during the first quarter.
We hope to hear a sales update on the new Model Y, especially in key markets including the US and China, as well as the timeline for Tesla’s launch of its more affordable vehicle. We think these new models will drive delivery growth in the second half of the year.
