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Morningstar | Why We Lowered Our Model 3 Projections and Lowered Tesla's FVE

We recently lowered our Tesla fair value estimate to $179 from $235 based on comments CEO Elon Musk made in a July 13 Bloomberg interview. While speaking about the Model 3 being a "bet-the-company" situation, given the large step-up in production required, Musk said, "Once we break through to mass-market cars, where mass-market is on the order of a quarter million vehicles per year, I cannot see us doing a 1.2-million-vehicle program of one particular model." Given that Musk is talking about mass-market volume at around 250,000 units a year, we judged that his comment above meant that the Model 3 will never be close to the range of 1.2 million annual units. We did not take his 1.2 million figure literally and instead thought of it as something in the low 1-million-unit range, or close to 1 million.

We had been modeling 2027 Model 3 deliveries of about 1.1 million units, so we have reduced our Model 3 volume projection during our 10-year forecast period by 42%. We still model Model 3 volume in 2027 at well above 250,000 units, approximately 630,000, but we felt our prior projection of 1.1 million was too high, given this new information. What Tesla will look like in 2027 is still highly uncertain, and over time we may move more Model 3 volume to other variants such as the Model Y crossover derived from the Model 3 platform, or to vehicles not yet announced, such as a pickup truck and a compact car. Tesla's mass-market ambitions over the next decade may be much smaller than we previously thought, so we made a large reduction in our volume forecast to reflect that change in our view.

Also noteworthy is that The Wall Street Journal reported the evening of July 22 that Tesla has made a request of some suppliers to refund payments for parts back to 2016 in order to help Tesla become profitable. Automakers often have brutal pricing demands on suppliers for future work, but retroactive rebates is not something we hear much about, and this is troubling for us to hear.