Tesla, Inc. designs, develops, manufactures, sells, and leases fully electric vehicles and energy-generation and storage systems, and offers services related to its products, such as leasing of electric vehicles and sales of automotive regulatory credits. Its automotive products include the Model 3, Model Y, Model S, and Model X. Currently, the company produces its electric cars at gigafactories in the United States, Germany, and China.

Investment Overview

Leading EV manufacturer backed by economic MOATs. Tesla is a leading global EV manufacturer, backed by its firm market leadership with an estimated 20% market share based on global sales, and healthy automotive margins seen in the industry (FY23 at 17%, on top end range of peers between 10-20%) which we believe is a commendable feat given that many legacy OEMs are still witnessing losses in EV production. Tesla's leading market share is backed by its economic MOAT in EV charging infrastructure and supercharger network, which has seen rising adoption by other OEM competitors such as Ford, GM, Mercedes, Nissan, Polestar, Rivian, Volvo and more in North America. Furthermore, ongoing ramp-up and progress in its autonomous driving and other software (e.g., full self-driving aka FSD) could also emerge as another emerging economic MOAT for Tesla, with Tesla often being considered as a leader in autonomous driving (aka ADAS) especially among US OEMs.

2Q24 results a miss. Despite retaining its #1 EV spot, Tesla's volume achievement was at the expense of soft automotive gross margins and lower earnings than expected, given bouts of price cuts in April in Tesla’s key markets (e.g., China, Germany, US) in order to stimulate demand. Tesla reported 2Q non-gaap net income of USD1.8bn (+18% y/y, -42% y/y), missing estimates by -14%. 2Q24 revenue was in-line with estimates at USD25.5bn (+20% q/q, +2% y/y). However, Tesla's earnings miss was attributed by weaker-than-expected automotive gross margins at 13.9% (-1.7% q/q, -3.7% y/y, below consensus estimates at 15.9%).

Autonomy execution has been lackluster thus far, all eyes on 10 Oct robo-taxi launch. We believe headwinds to Tesla's volume/deliveries and margins continue to persist e.g., EU-China tariffs, Cybertruck ramp-up difficulties, next-generation EV launch. IRA policy risks arising from a potential Trump Presidency could also impact the broader EV industry. Amid ongoing EV delivery/margin headwinds, Tesla has been making strides to pivot its brand away from an "EV" company into an "autonomy" company, backed by its AI/humanoid robot/autonomous driving ambitions and R&D ramp-up e.g., Elon Musk guiding for Optimus humanoid robot production in 2025-2026. Positive catalysts to watch include (i) Tesla’s long-awaited robo-taxi launch (10 Oct), (ii) next-generation EV launch (on track for 2025 debut), (iii) FSD regulatory approvals in Europe, China and other countries (guided by 2024), and (iv) potential FSD licensing by other OEMs, with the latter currently not priced in by the market in our view, which can help to support share price and investor sentiment in the near term.

Maintain HOLD with unchanged TP of USD240.

Risks

Firstly, weaker-than-expected volume sales can lead to downside risks to Tesla's earnings, especially as EV competition heats up, noting rising competition and impressive EV sales growth from China OEM leaders such as BYD. Furthermore, the weakening macroeconomic environment in global/China markets can also pose headwinds to volume sales. Secondly, margin dilution remains as a risk to Tesla, especially amid the ongoing aggressive price cuts in the OEM industry.

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DYODD