Morningstar Equity Analyst Report | Report as of 12 Aug 2020 01:31, UTC | Page 1 of 15 Tesla Inc TSLA (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship Q 1,374.39 USD 751.00 USD 1.83 — 0.00 256.13 Auto Manufacturers Standard 11 Aug 2020 11 Aug 2020 23 Jul 2020 11 Aug 2020 11 Aug 2020 11 Aug 2020 21:42, UTC 03:11, UTC Morningstar Pillars Analyst Quantitative Important Disclosure: Economic Moat None None The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of Conduct Policy, Personal Security Trading Policy (or an equivalent of), Valuation Q Overvalued and Investment Research Policy. For information regarding conflicts of interest, please visit http://global.morningstar.com/equitydisclosures Uncertainty Very High High Financial Health — Moderate Tesla Successfully Panders to Retail Investors With a 5-1 Stock Split Source: Morningstar Equity Research Quantitative Valuation TSLA Business Strategy and Outlook Analyst Note t USA David Whiston, CFA, CPA, CFE, Analyst, 22 July 2020 David Whiston, CFA, CPA, CFE, Analyst, 11 August 2020 Undervalued Fairly Valued Overvalued Tesla has a chance to be the dominant electric vehicle Tesla stock rose about 7% in after hours trading on Aug. firm and is a leading autonomous vehicle player as well 11 following the company announcing a 5-1 stock split. Current 5-Yr Avg Sector Country as a vertically integrated sustainable energy company Shareholders on record at Aug. 21 will receive four Price/Quant Fair Value 1.60 1.14 0.80 0.83 Price/Earnings 664.0 — 16.2 20.1 with energy generation and storage products, but we do additional shares via a stock dividend for each one share Forward P/E 208.3 — 12.3 13.9 not see it having mass-market volume this decade. Tesla's already owned. Shares will be distributed after the market Price/Cash Flow 97.0 165.4 10.2 13.1 closes on Aug. 28 and the stock will trade split adjusted product plans for now do not mean an electric vehicle for Price/Free Cash Flow 328.5 46.9 17.7 19.5 every consumer who wants one, because the prices are on Aug. 31. We will likely set our split adjusted fair value Trailing Dividend Yield% — — 2.46 2.35 Source: Morningstar too high. The Model X crossover released in late 2015 estimate on Aug. 31 at about $145. This value reflects the starts at about $80,000, the Model S sedan's starting price split, time value of money since our last update, and a Bulls Say is about $75,000, the Model 3 sedan starts at $37,990, higher share count to incorporate the 207 million presplit OTesla has the potential to change the world with and the Model Y crossover starts at about $50,000. Tesla’s diluted share count at June 30. Our post-split share count long-range EV technology, AV technology, and battery U.S. customers no longer receive the federal tax credit. will be 1.035 billion. technology that can store solar energy that its products generate. Tesla’s gigafactories, such as a lithium-ion battery plant A split itself does nothing to change the intrinsic value of OThe cost advantage of recharging over gasoline is in Nevada helping it soon have capacity for nearly 600,000 a company and we think Tesla is doing this to make its significant, and gas will probably never be able to vehicles at the Fremont, California, assembly plant, are stock more accessible to retail investors. The company catch up. Furthermore, the instant torque of EVs expanding. A new factory in Shanghai, wholly owned by said in its Aug. 11 release that the split is being done to makes them fun to drive, as the vehicle is always at Tesla, opened in late 2019 with capacity for 200,000 “make stock ownership more accessible to employees and full power. Model 3 and another 150,000 units for Model Y online in investors.” Since the coronavirus pandemic caused a rise OIts unique Supercharger network makes Tesla the 2021. Gigafactory Berlin (3 and Y) is under construction in day trading, fractional shareownership may be on the only automaker directly trying to alleviate the range until 2021 as is a Texas plant for the Semi, Cybertruck, board’s mind. anxiety of buying an EV. and 3 and Y. 2020 delivery guidance before the coronavirus was to comfortably exceed 500,000, but that looks unlikely We think a split is unnecessary but given Apple’s recent to us. Tesla sold about 368,000 vehicles globally in 2019. 4-1 split announcement and tech companies having a Bears Say Even if demand exists for 1 million vehicles, this quantity history of splitting, going up, and then splitting again, it’s OInvesting in Tesla carries tremendous uncertainty. is small relative to total global auto production, which not shocking to see Tesla take this path. CEO Elon Musk The market has high expectations for the stock, so a may reach 100 million units in the next few years. Thus, also said on May 1 via Twitter, on the same day that he slowdown in growth, execution problems, or lack of we think global mass adoption of pure electric vehicles is tweeted that he was selling almost all his physical capital could lead to a severe decline in the stock still years away, but Tesla is the leader in the space. possessions and homes, that he felt Tesla’s stock price price. was too high. The stock opened at $755 that day and has OThe acquisition of SolarCity and Elon Musk's more than doubled since then before coming back down Tesla will have growing pains, possible recessions to fight recent erratic behavior adds uncertainty. The stock in recent days, a downward trend the split news will now through before reaching mass-market volume, more has massive key man risk. likely conveniently stop. In theory, Tesla’s stock should not competition, and needs to pay off debt. It is important to OMass EV adoption by consumers could be many keep the hype about Tesla in perspective relative to the go up on this news, but its rise after hours supports our more years away than Tesla expects. If demand does firm's limited, though now growing, production capacity. point that retail investors will find the shares more not materialize, the company is likely to struggle to Tesla's mission is to make EVs increasingly more attractive at the lower price. recoup the costs of the gigafactory. Audi, BMW, GM, affordable, which means more assembly plants must Mercedes, and others are no longer ignoring BEVs. come on line to achieve annual unit delivery volume in the Economic Moat millions. This expansion will cost billions a year in capital David Whiston, Analyst, 22 July 2020 spending and research and development and will be We do not see a moat yet because Tesla is still relatively necessary even during downturns in the economic cycle. early in its life cycle and has a high degree of execution risk as it adds new models and new capacity. This dynamic ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 2 of 15 Tesla Inc TSLA (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship Q 1,374.39 USD 751.00 USD 1.83 — 0.00 256.13 Auto Manufacturers Standard 11 Aug 2020 11 Aug 2020 23 Jul 2020 11 Aug 2020 11 Aug 2020 11 Aug 2020 21:42, UTC 03:11, UTC Close Competitors Currency (Mil) Market Cap TTM Sales Operating Margin TTM/PE Tesla's long range gives it a huge advantage over pure EVs Toyota Motor Corp 7203 JPY 19,991,131 0 6.40 12.55 on the market (402-mile EPA range for the long-range Model S versus about 300 for the Ford Mustang Mach-E, Nissan Motor Co Ltd 7201 JPY 1,589,411 0 -2.26 0.00 259 miles for the Chevrolet Bolt, 226 miles for the Nissan Volkswagen AG VOW3 EUR 73,457 223,568 2.48 12.67 Leaf, 234 miles for the Jaguar I-PACE, and 204 miles for Daimler AG DAI EUR 45,247 157,804 1.63 0.00 the Audi e-tron), we consider Tesla's competition to be the creates huge uncertainty as to whether the firm will entire auto industry rather than just EVs. There are far too succeed in making great product at an affordable price many automakers globally for us to claim Tesla's market and whether enough consumers will make the switch from is effectively served by a small number of players. internal combustion engine and hybrid vehicles. There is evidence suggesting that Tesla will succeed, but if not, Musk's own words do not support efficient scale. He wrote Tesla will remain an automaker for the wealthy. In a in a June 12, 2014, blog post announcing that Tesla would January 2014 Automotive News interview, Musk said in not sue companies that use its patented technology in regard to Tesla making it: "I think we will, but this is not good faith: "Given that annual new-vehicle production is a bold assertion we unequivocally will. There is a approaching 100 million per year and the global fleet is possibility we may not." approximately 2 billion cars, it is impossible for Tesla to build electric cars fast enough to address the carbon crisis. Tesla's growth runway looks lucrative, but this growth By the same token, it means the market is enormous. Our also requires constant substantial reinvestment in true competition is not the small trickle of non-Tesla platforms, the Nevada gigafactory--for which Tesla is only electric cars being produced, but rather the enormous spending about 40% of the total cost of about $5 billion, flood of gasoline cars pouring out of the world's factories while suppliers pay the rest--and annual assembly every day." capacity, since the eventual output limit of Fremont is uncertain, as is the cadence of Tesla opening new plants Fair Value & Profit Drivers overseas. During this growth phase, there will almost David Whiston, Analyst, 22 July 2020 certainly be a recession or two. In times of economic We are raising our fair value estimate to $751 from $731 uncertainty, it is difficult to say what Tesla's sales volume per share. The change is from the time value of money and will be or what access, if any, the firm will have to capital slightly better 2020-21 results after considering the firm's markets. Tesla wants between 10 and 12 gigafactories in first-half 2020 performance. Our weighted average cost the long term. of capital is 8.8% and our midcycle operating margin is 11%. We expect the company to remain a leader in We model return on invested capital below weighted autonomous technology and range. Tesla is also gaining average cost of capital until 2021 in light of high capital scale, and its ability to make desirable vehicles while expenditure requirements and lower vehicle volumes in generating free cash flow and net profit is far better than the early years of our forecast. We also see risk of major it’s ever been, in our opinion. We think Tesla will continue value destruction should EV adoption flop or occur much to provide formidable competition to premium more slowly than any of our three 10-year forecast periods automakers, and its technology and range advantage may assume, or if the company cannot meet its volume targets. provide a pricing premium over mass market vehicles for For that reason, we wait for now to award Tesla a moat, a long time. but we see a positive moat trend as a result of the strengthening of the firm's brand and its cost structure. We model total deliveries over our 10-year forecast period of about 13.6 million. We remain concerned about Tesla’s Although we stress the uncertainty in investing in Tesla debt load, though less so than in the past due to more today, the company's competitive position is better than consistent free cash flow generation and a growing cash some may expect from a tech startup that makes balance despite the virus pandemic. Tesla is a volatile automobiles. Looking at our five moat sources, we see a name and fair value estimate changes may be frequent as case for brand (intangibles) and cost advantage as sources its story changes. We add back about $4.6 billion of of a moat in the future. Some may argue for efficient scale, nonrecourse debt to our valuation. claiming that Tesla is the dominant pure EV firm. Although ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 3 of 15 Tesla Inc TSLA (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship Q 1,374.39 USD 751.00 USD 1.83 — 0.00 256.13 Auto Manufacturers Standard 11 Aug 2020 11 Aug 2020 23 Jul 2020 11 Aug 2020 11 Aug 2020 11 Aug 2020 21:42, UTC 03:11, UTC We model 2020 vehicle deliveries of about 400,000, 2021 fate is closely linked to Musk's actions. Should he leave deliveries of about 600,000, and about 900,000 in 2022. the company or the SEC bans him from running Tesla, we We model capital expenditure of $3.3 billion in 2020. would not be surprised to see the stock fall dramatically. When modeling Tesla in our discounted cash flow model, Also, Musk has 18.5 million Tesla shares as collateral for we keep an open mind regarding the disruptive potential personal debt. Selling this block of shares quickly may of Tesla on the auto and utilities industry as well as cause a rapid fall in Tesla's stock price. Tesla will soon focusing on what the company can achieve in 10 years. have formidable EV competition from German premium For a young company like Tesla, we think long-term brands it does not have today. It's uncertain if Tesla vehicle potential is the more important question and value driver owners will also want solar panels and batteries in than how many Model 3 or Model Ys get delivered in a sufficient volume to justify buying SolarCity. Given the quarter. many uncertainties regarding investing in Tesla today, including COVID-19 and the debt load, our fair value Management's long-term guidance since its 2010 initial uncertainty rating will remain very high or extreme for a public offering is for an operating margin in the low teens long time. to midteens. The guidance excludes stock option expense, whereas we include stock option expense in EBIT to Stewardship capture the cost of diluting shareholders. Tesla has upside David Whiston, Analyst, 22 July 2020 margin potential if it can reduce its battery cost, We award Tesla a Standard stewardship rating. Musk is significantly exceed our delivery estimates, and have a barred from holding the chairman role for three years high-margin storage and autonomous ride-hailing following a 2018 settlement with the SEC on civil business. We model $2.2 billion of energy revenue in securities fraud charges. Tesla must also appoint two new 2020, with that figure growing to about $6.6 billion by independent directors. In December 2018, Tesla appointed 2029. This revenue is about 4% of our fair value estimate. Oracle founder Larry Ellison and Walgreens HR boss Kathleen Wilson-Thompson to the board to fulfill the Risk & Uncertainty settlement. Ellison is a fierce Elon cheerleader, so we David Whiston, Analyst, 22 July 2020 doubt he will give Musk any headaches. In November Investing in Tesla comes with tremendous uncertainties 2018, Tesla named Robyn Denholm chairman. She has due to the future of electric vehicles and energy storage. been on Tesla's board since 2014 and has experience both If a recession hits, investors may not want to hold the in autos with Toyota Australia in finance and in technology stock of a firm whose story will not play out until next as CFO and COO of Juniper Networks and CFO of Telstra decade, or Tesla could fail to raise capital when it needs and time at Sun Microsystems. We like that she resigned it. Until an electric vehicle far cheaper than the Model 3 as Telstra's CFO to focus full time on Tesla. We do not goes on sale in mass volume, there is no way to know for expect major changes in Tesla day to day and still think it sure if consumers in large volume are willing to switch to is the Elon Musk show. Denholm's top priority in our view an EV and deal with range anxiety and longer charging will be to keep Musk content and ensure he doesn't say times compared with using a gas station. Tesla is fighting anything to violate his SEC settlement. Musk in 2020 again a state-by-state battle to keep its stores factory-owned attacked the SEC on Twitter which makes us nervous given rather than franchised, which raises legal risk for Tesla he already has a strike against him with the agency. and could one day stall growth. Other automakers are entering the BEV space. If the company's growth ever We considered downgrading our rating after the all-stock stalls or reverses, we would expect a severe decline in offer to acquire SolarCity closed because the offer came the stock price because current expectations for Tesla are about one month after Tesla raised equity and at the time immense, in our opinion. With a young, growing company, there was no disclosure of a possible acquisition. The deal there is always more risk of diluting shareholders or taking to acquire a firm led by two of Elon Musk's cousins (who on too much debt to fund growth. Tesla also has customer have since left Tesla) after SolarCity's stock had fallen by concentration risk, with the U.S. and China constituting 75% since early 2014 is not what we like to see. We left about 64% of 2019 GAAP revenue, up from 56% in 2015. our rating in place, however, because there is a valid strategic rationale for acquiring SolarCity, which is to We see immense key-man risk for the stock, as Tesla's make Tesla a vertically integrated sustainable energy ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 4 of 15 Tesla Inc TSLA (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship Q 1,374.39 USD 751.00 USD 1.83 — 0.00 256.13 Auto Manufacturers Standard 11 Aug 2020 11 Aug 2020 23 Jul 2020 11 Aug 2020 11 Aug 2020 11 Aug 2020 21:42, UTC 03:11, UTC company. affirmative votes. This proposal was a step in the right direction but we see the 10 member board as still friendly Musk, 49, is synonymous with Tesla, and the stock could to Musk. We'd like to see the entire board up for election suffer should he resign. We doubt he will resign soon, annually and more members with fewer ties to Musk. however, because shareholders approved a new 10-year performance award in January 2018. The plan has Musk has arguably too much responsibility serving as aggressive market cap targets for Tesla’s stock of up to Tesla and SpaceX CEO, plus running the Boring Company $650 billion that are paired with 16 milestones focused and artificial intelligence plans, which raises the risk of on revenue and adjusted EBITDA targets. The revenue him being pulled in too many directions. Directors and targets are as large as $175 billion and the adjusted officers own over 20% of Tesla's stock (Ellison owns EBITDA targets, which exclude stock-based compensation 1.7%), so Elon's interests are aligned with Tesla's expense, are for as much as $14 billion. Up to 16 shareholders, but other shareholders are essentially along operational milestones may be paired with the market cap for the ride. Tesla has various related-party transactions milestones for shares to vest. The market cap milestones with SpaceX or The Boring Company for aircraft, battery start at $100 billion and go up in $50 billion increments components, and other equipment, but we see no alarming afterward. As the board certifies each milestone, Musk transactions. receives one of 12 tranches of stock options. Each tranche is for about 1.69 million shares (about 1% of Tesla’s outstanding shares) and has a strike price of $350.02. Musk must hold any shares he exercises for five years (which we like a lot), and there is no acceleration of vesting for a change in control. It is also important that the plan gives clarity to Elon’s status as CEO. We do not think he wants to be CEO forever, but he has said he will remain involved with Tesla for the rest of his life. This new award has vesting eligibility as long as Musk is CEO or stops being CEO to become executive chairman plus chief product officer. Musk has many interests beyond Tesla, so we expect he will not be CEO for the length of this award plan. Tesla has estimated in the past that should Musk receive all the shares, he would own 28.3% of Tesla. The plan is designed so that as Tesla issues more shares, the maximum value of the compensation, which Tesla estimates at about $55.8 billion, goes down. We see this plan as very rewarding for shareholders, should Tesla reach a $650 billion market cap. It’s a plan that encourages massive growth in shareholder value over a long period and is done in a way that is easy to track with metrics reported in SEC filings. It also does not give Musk incentive to sell the company. Musk beneficially owns about 21% of the stock. Musk is on the board along with his brother, Kimbal and many longtime connections of Elon's. In 2019, Tesla proposed to reduce its classes of directors to two from three, which would mean two-year terms instead of three years but the proposal failed because too many nonvotes led to no supermajority of outstanding shares for the ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 5 of 15 Tesla Inc TSLA (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship Q 1,374.39 USD 751.00 USD 1.83 — 0.00 256.13 Auto Manufacturers Standard 11 Aug 2020 11 Aug 2020 23 Jul 2020 11 Aug 2020 11 Aug 2020 11 Aug 2020 21:42, UTC 03:11, UTC March sales fell 37.9% year over year and by 33.0% Analyst Notes Archive factoring in two fewer selling days in March 2020. 2020 sales through March are down 12.7%, with every major Coronavirus Not Yet Hurting U.S. Autos, but We automaker except Kia falling. We expect far worse April Expect Bad News at Least Through April numbers because April will likely be a near total loss for David Whiston, Analyst, 12 March 2020 the industry because of the coronavirus. Some dealers are Before the coronavirus pandemic, we were more bearish doing home delivery or open for sales in some states, but on 2020 U.S. auto demand than most forecasts, as we this will not be enough to offset the massive damage explained in our Jan. 30 Auto Observer: Moats, Motors, caused by the virus. The March seasonally adjusted and Markets. We forecast a decline from 2019 of up to annualized selling rate of 11.37 million is the lowest since 3.6% to as low as 16.5 million. We expected a continued 11.25 million in April 2010. February 2009’s 9.05 million off-lease surge to move consumers into used vehicles over may be beaten by April 2020 as a new industry low for new, and we still do. The virus’ impact on U.S. auto sales data back through 1980. is still in its early stages, and there is little data as of March 12 to gauge the impact, so we are not changing We still think the uncertainty is too great to give a narrow our forecast at this time. No North American plants have range for 2020 sales and expect that uncertainty to last stopped production yet due to parts shortages, but we into at least May. We’ve seen industry forecasters with expect earnings headwinds from air freight charges and full-year 2020 sales between the low 11 million to over production will be affected if Chinese parts plants don’t 15 million range, with many base-case numbers at around reopen fast enough to keep North American plants 13 million to slightly over 14 million. We don’t find any of moving. We are keeping our forecast in place provided these predictions unreasonable, as it depends on how fast the highest fear levels from the virus subside in the next consumers can come back to the showroom. Even a dire few months. 2020 of under 11 million vehicles would not cause fair value estimates to change to where our U.S. auto coverage We’ve seen resumption of 0% financing from automakers, presently trades. such as Chevrolet on certain Silverado pickup purchases, and lower interest rates following the Federal Reserve’s Ford’s total first-quarter sales fell 12.5% year over year. rate cut may mitigate some damage. According to Lincoln’s sales rose 2.3% thanks to the new Aviator Automotive News, citing J.D. Power data, sales in Seattle crossover, but we calculate a 20.3% decline excluding the fell 20% last week, while New York state sales have not Aviator. The F-Series pickup fell 13.1%, partly from the been affected. The Central Florida Auto Dealers virus and partly from timing of fleet deliveries. One of the Association this week said it has seen no virus impact to few bright spots came from the new-generation Explorer its members’ Orlando stores. Large abrupt declines from crossover, which for retail channel sales grew 10.5%, with a health scare is not surprising to us, but we think it’s too the company calling out strong growth in the Midwest and early to extrapolate numbers nationally or for the rest of coastal regions. The Transit van used by businesses grew 2020. Still, we expect poor sales numbers in March and 15.7% to have its best first-quarter volume since the April. U.S. light-vehicle sales for the first two months of vehicle debuted in 2014. the year were doing well, albeit helped by high incentives. According to Wards, U.S. sales through February rose Tesla Posts a First Quarter Profit for the First Time 4.5% year over year, with all but three automakers (Ford, David Whiston, Analyst, 29 April 2020 Nissan, and Tesla) showing growth. Contrary to what the Tesla reported a record first quarter, and we calculate stock market is doing, we do not think it’s time to panic, adjusted diluted EPS of $1.14 compared with first-quarter but uncertainty will remain for a while. 2019 EPS of negative $2.90. We expect large upward stock moves for Tesla in May as results crushed the Refinitiv Ford's First-Quarter Sales Slammed by Coronavirus, EPS consensus of a loss of $0.36. We also expect second but All U.S. Autos to Be Decimated in April quarter will suffer from the firm’s main plant in California David Whiston, Analyst, 02 April 2020 being shutdown since late March, but once COVID-19 Automakers finished reporting March and first-quarter restrictions are lifted, we expect Tesla to fill a large U.S. light-vehicle sales on April 2. According to Wards, number of orders which are still coming in online. We ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 6 of 15 Tesla Inc TSLA (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship Q 1,374.39 USD 751.00 USD 1.83 — 0.00 256.13 Auto Manufacturers Standard 11 Aug 2020 11 Aug 2020 23 Jul 2020 11 Aug 2020 11 Aug 2020 11 Aug 2020 21:42, UTC 03:11, UTC understand given COVID-19 uncertainty that management cannot give 2020 delivery guidance, but we like that Tesla Tesla still hopes to deliver 500,000 vehicles this year which continues to invest without slowing as evidenced by the will be hard given first-half deliveries totaled 179,387. We Shanghai Model Y plant and Gigafactory Berlin both due also are worried about California and other states to start production next year. instituting new stay at home orders due to COVID-19 cases surging. Second-quarter deliveries fell 5% year over year We regret nearly halving our fair value estimate on March to 90,891, with combined Model S & X deliveries down 18, partly based on a higher weighted average cost of 40% and combined Model 3 and Y up 3%. Tesla said it capital due to Tesla’s 2025 bond yield exceeding 10%, remains difficult to predict further interruptions and because, in hindsight, that is the same time the bond yield consumer sentiment changes and that achieving the peaked. Even a pandemic causes no fear for the market 500,000 target has become more difficult. We are keeping with this stock, and we're lowering our WACC to about our 2020 deliveries at 400,000 but we are raising our fair 8.8% from 12%. We're also raising our midcycle operating value estimate to $751 on the time value of money and margin back to 11% and raising deliveries over our 10-year better 2020-21 results. forecast period because we think Tesla will continue to provide formidable competition to premium automakers The company confirmed its next gigafactory will be in and have a million units of capacity by the end of 2021. Austin, Texas and it will make all Cybertrucks and Semi, These changes mean we are increasing our fair value plus the Model 3 and Ys for the eastern U.S. Fremont will estimate to about $731 from $239. If a recession can’t make all S & Xs, the new Roadster, and Western U.S. 3 stop Tesla then virtually nothing will, and we expect the and Ys. CEO Elon Musk would not comment on the Austin company to remain a leader in autonomous technology plant’s capacity but given Semi is due next year, we expect and range. Tesla is also gaining scale and its ability to Austin to be at least partially complete next year. make desirable vehicles while generating free cash flow and net profit is far better than it’s ever been. For the Tesla Successfully Panders to Retail Investors With quarter, free cash flow was negative $895 million but this a 5-1 Stock Split was mostly for inventory increases which we expect will David Whiston, Analyst, 11 August 2020 become a free cash flow benefit once vehicles being held Tesla stock rose about 7% in after hours trading on Aug. at the end of first quarter get delivered next quarter. 11 following the company announcing a 5-1 stock split. Shareholders on record at Aug. 21 will receive four Regulatory Credit Sales Enable Tesla to Post a Profit additional shares via a stock dividend for each one share Which May Lead to S&P 500 Inclusion already owned. Shares will be distributed after the market David Whiston, Analyst, 22 July 2020 closes on Aug. 28 and the stock will trade split adjusted Tesla reported profitable second-quarter GAAP results, on Aug. 31. We will likely set our split adjusted fair value and adjusted diluted EPS of $2.18 rose significantly from estimate on Aug. 31 at about $145. This value reflects the the prior year’s quarterly loss of $1.12. We calculate Tesla split, time value of money since our last update, and a had a pretax loss of $278 million excluding $428 million higher share count to incorporate the 207 million presplit of regulatory credit revenue. This is the fourth straight diluted share count at June 30. Our post-split share count GAAP profit quarter which means the stock may soon be will be 1.035 billion. added to the S&P 500 index, likely leading to further gains for the stock as index funds and active managers wanting A split itself does nothing to change the intrinsic value of to keep pace with the index add the stock. GAAP free cash a company and we think Tesla is doing this to make its flow fell 31.9% year over year to $418 million, but we still stock more accessible to retail investors. The company consider it impressive because the Fremont plant was said in its Aug. 11 release that the split is being done to shutdown from the coronavirus for over a month and “make stock ownership more accessible to employees and capital expenditure more than doubled to $546 million. investors.” Since the coronavirus pandemic caused a rise The resumption of production made the working capital in day trading, fractional shareownership may be on the unwind from paying vendors, despite no new revenue board’s mind. coming in, less than management feared on the first-quarter call. We think a split is unnecessary but given Apple’s recent ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 7 of 15 Tesla Inc TSLA (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship Q 1,374.39 USD 751.00 USD 1.83 — 0.00 256.13 Auto Manufacturers Standard 11 Aug 2020 11 Aug 2020 23 Jul 2020 11 Aug 2020 11 Aug 2020 11 Aug 2020 21:42, UTC 03:11, UTC 4-1 split announcement and tech companies having a history of splitting, going up, and then splitting again, it’s not shocking to see Tesla take this path. CEO Elon Musk also said on May 1 via Twitter, on the same day that he tweeted that he was selling almost all his physical possessions and homes, that he felt Tesla’s stock price was too high. The stock opened at $755 that day and has more than doubled since then before coming back down in recent days, a downward trend the split news will now likely conveniently stop. In theory, Tesla’s stock should not go up on this news, but its rise after hours supports our point that retail investors will find the shares more attractive at the lower price. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Quantitative Equity Report | Release: 11 Aug 2020, 20:31 UTC | Reporting Currency: USD | Trading Currency: USD | Exchange:XNAS Page Page 8 of1 15 of 1 Tesla Inc TSLA QQ 11 Aug 2020 02:00 UTC Last Close Fair ValueQ Market Cap Sector Industry Country of Domicile 11 Aug 2020 11 Aug 2020 02:00 UTC 11 Aug 2020 1,374.39 861.67 256.1 Bil t Consumer Cyclical Auto Manufacturers USA United States There is no one analyst in which a Quantitative Fair Value Estimate and Quantitative Star Rating are attributed to; however, Mr. Lee Davidson, Head of Quantitative Price vs. Quantitative Fair Value Research for Morningstar, Inc., is responsible for overseeing the methodology that 2016 2017 2018 2019 2020 2021 Quantitative Fair Value Estimate supports the quantitative fair value. As an employee of Morningstar, Inc., Mr. Total Return Davidson is guided by Morningstar, Inc.’s Code of Ethics and Personal Securities Trading Policy in carrying out his responsibilities. For information regarding Conflicts Sales/Share 1,810 of Interests, visit http://global.morningstar.com/equitydisclosures Forecast Range Forcasted Price 1,448 Dividend Company Profile Split Founded in 2003 and based in Palo Alto, California, Tesla is a Momentum: Positive 1,086 vertically integrated sustainable energy company that also Standard Deviation: 65.44 aims to transition the world to electric mobility by making Liquidity: High 724 electric vehicles. It sells solar panels and solar roofs for energy generation plus batteries for stationary storage for 211.00 52-Wk 1,794.99 residential and commercial properties including utilities. It 362 also makes solar roofs and plans to enter the HVAC market. 141.05 5-Yr 1,794.99 The Tesla Roadster debuted in 2008, Model S in 2012, Model -11.0 45.7 6.9 25.7 228.5 Total Return % X in 2015, Model 3 in 2017, and Model Y in 2020. Global -23.4 24.2 11.9 -5.5 224.1 +/– Market (Morningstar US Index) Quantitative Scores Scores — — — — — Trailing Dividend Yield % All Rel Sector Rel Country — — — — — Forward Dividend Yield % Quantitative Moat None 49 47 46 -33.4 -36.5 -31.4 -89.3 666.7 Price/Earnings Valuation Overvalued 1 1 1 5.0 4.7 3.2 3.0 10.2 Price/Revenue Quantitative Uncertainty High 92 94 91 Morningstar RatingQ Financial Health Moderate 60 33 60 QQQQQ QQQQ QQQ TSLA QQ Q t USA 2015 2016 2017 2018 2019 TTM Financials (Fiscal Year in Mil) Undervalued Fairly Valued Overvalued 4,046 7,000 11,759 21,461 24,578 25,708 Revenue Source: Morningstar Equity Research 26.5 73.0 68.0 82.5 14.5 4.6 % Change -717 -667 -1,632 -253 80 1,218 Operating Income — — — — — 1,422.5 % Change Valuation Sector Country Current 5-Yr Avg Median Median -889 -675 -1,961 -976 -862 368 Net Income Price/Quant Fair Value 1.60 1.14 0.80 0.83 -524 -124 -61 2,098 2,405 2,705 Operating Cash Flow Price/Earnings 664.0 — 16.2 20.1 -1,635 -1,440 -4,081 -2,320 -1,437 -1,906 Capital Spending Forward P/E 208.3 — 12.3 13.9 -2,159 -1,564 -4,142 -222 968 799 Free Cash Flow Price/Cash Flow 97.0 165.4 10.2 13.1 -53.4 -22.3 -35.2 -1.0 3.9 3.1 % Sales Price/Free Cash Flow 328.5 46.9 17.7 19.5 -6.93 -4.68 -11.83 -5.72 -4.92 2.07 EPS Trailing Dividend Yield % — — 2.46 2.35 — — — — — — % Change Price/Book 26.0 17.7 1.6 2.4 -17.14 -6.34 -30.01 -8.84 4.98 4.18 Free Cash Flow/Share Price/Sales 10.2 5.3 0.9 2.4 — — — — — — Dividends/Share 10.00 16.59 27.91 26.12 33.36 52.88 Book Value/Share Profitability Sector Country 131,425 161,561 168,797 172,603 181,062 186,362 Shares Outstanding (K) Current 5-Yr Avg Median Median Profitability Return on Equity % 4.7 -38.4 12.2 12.9 -88.8 -23.1 -43.6 -21.3 -14.9 4.7 Return on Equity % Return on Assets % 1.1 -6.2 5.4 5.2 -12.8 -4.4 -7.6 -3.3 -2.7 1.1 Return on Assets % Revenue/Employee (K) 535.4 361.5 566.3 325.9 -22.0 -9.6 -16.7 -4.6 -3.5 1.4 Net Margin % 0.58 0.46 0.46 0.74 0.77 0.73 Asset Turnover Financial Health Sector Country Current 5-Yr Avg Median Median 7.4 4.8 6.8 6.0 5.2 3.9 Financial Leverage Distance to Default 0.5 0.5 0.6 0.5 22.8 22.9 18.9 18.8 16.6 19.8 Gross Margin % Solvency Score 683.3 — 486.0 552.4 -17.7 -9.5 -13.9 -1.2 0.3 4.7 Operating Margin % Assets/Equity 5.2 6.0 1.8 1.7 2,082 5,978 9,418 9,404 11,634 9,291 Long-Term Debt Long-Term Debt/Equity 1.8 1.8 0.2 0.4 1,089 4,753 4,237 4,923 6,618 9,855 Total Equity 1.0 0.7 0.7 1.1 1.2 1.3 Fixed Asset Turns Growth Per Share Quarterly Revenue & EPS Revenue Growth Year On Year % 1-Year 3-Year 5-Year 10-Year Revenue (Mil) Mar Jun Sep Dec Total Revenue % 14.5 52.0 50.4 71.5 2020 5,985.0 6,036.0 — — — Operating Income % — — — — 2019 4,541.5 6,349.7 6,303.0 7,384.0 24,578.0 128.6 119.7 Earnings % — — — — 2018 3,408.8 4,002.2 6,824.4 7,225.9 21,461.3 Dividends % — — — — 2017 2,696.3 2,789.6 2,984.7 3,288.2 11,758.8 58.7 Book Value % 28.2 7.5 38.2 — Earnings Per Share () 43.5 33.2 31.8 Stock Total Return % 484.8 56.6 42.1 54.4 2020 0.08 0.50 — — — 2.2 2019 -4.10 -2.31 0.78 0.56 -4.92 -4.9 -7.6 2018 -4.19 -4.22 1.75 0.78 -5.72 2018 2019 2020 2017 -2.04 -2.04 -3.70 -4.01 -11.83 © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and ® opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore is not an offer to buy or sell a security; are not warranted to be correct, complete or accurate; and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, ß analyses or opinions or their use. The information herein may not be reproduced, in any manner without the prior written consent of Morningstar. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 9 of 15 Research Methodology for Valuing Companies Qualitative Equity Research Overview intangible assets, switching costs, network effect, cost Our model is divided into three distinct stages: At the heart of our valuation system is a detailed projection advantage, and efficient scale. of a company's future cash flows, resulting from our Stage I: Explicit Forecast analysts' research. Analysts create custom industry and Companies with a narrow moat are those we believe In this stage, which can last five to 10 years, analysts company assumptions to feed income statement, balance are more likely than not to achieve normalized excess make full financial statement forecasts, including items sheet, and capital investment assumptions into our globally returns for at least the next 10 years. Wide-moat such as revenue, profit margins, tax rates, changes in standardized, proprietary discounted cash flow, or DCF, companies are those in which we have very high working-capital accounts, and capital spending. Based modeling templates. We use scenario analysis, in-depth confidence that excess returns will remain for 10 years, on these projections, we calculate earnings before competitive advantage analysis, and a variety of other with excess returns more likely than not to remain for at interest, after taxes, or EBI, and the net new analytical tools to augment this process. We believe this least 20 years. The longer a firm generates economic investment, or NNI, to derive our annual free cash flow bottom-up, long-term, fundamentally based approach profits, the higher its intrinsic value. We believe low- forecast. allows our analysts to focus on long-term business drivers, quality no-moat companies will see their normalized which have the greatest valuation impact, rather than short- returns gravitate toward the firm's cost of capital more Stage II: Fade term market noise. quickly than companies with moats. The second stage of our model is the period it will take the company's return on new invested capital—the Morningstar's equity research group (“we," "our") believes To assess the direction of the underlying competitive return on capital of the next dollar invested ("RONIC")— that a company's intrinsic worth results from the future advantages, analysts perform ongoing assessments of to decline (or rise) to its cost of capital. During the Stage cash flows it can generate. The Morningstar Rating for the moat trend. A firm's moat trend is positive in cases II period, we use a formula to approximate cash flows in stocks identifies stocks trading at an uncertainty-adjusted where we think its sources of competitive advantage lieu of explicitly modeling the income statement, discount or premium to their intrinsic worth—or fair value are growing stronger; stable where we don't anticipate balance sheet, and cash flow statement as we do in estimate, in Morningstar terminology. Five-star stocks sell changes to competitive advantages over the next Stage I. The length of the second stage depends on the for the biggest risk-adjusted discount to their fair values several years; or negative when we see signs of strength of the company's economic moat. We forecast whereas 1-star stocks trade at premiums to their intrinsic deterioration. this period to last anywhere from one year (for worth. companies with no economic moat) to 10–15 years or All the moat and moat trend ratings undergo periodic more (for wide-moat companies). During this period, Four key components drive the Morningstar rating: (1) our review and any changes must be approved by the cash flows are forecast using four assumptions: an assessment of the firm's economic moat, (2) our estimate of Morningstar Economic Moat Committee, comprised of average growth rate for EBI over the period, a the stock's fair value, (3) our uncertainty around that fair senior members of Morningstar's equity research normalized investment rate, average return on new value estimate and (4) the current market price. This department. invested capital, or RONIC, and the number of years process ultimately culminates in our single-point star rating. until perpetuity, when excess returns cease. The 2. Estimated Fair Value investment rate and return on new invested capital 1. Economic Moat Combining our analysts' financial forecasts with the decline until the perpetuity stage is reached. In the case The concept of an economic moat plays a vital role not firm's economic moat helps us assess how long returns of firms that do not earn their cost of capital, we only in our qualitative assessment of a firm's long-term on invested capital are likely to exceed the firm's cost of assume marginal ROICs rise to the firm's cost of capital investment potential, but also in the actual calculation capital. Returns of firms with a wide economic moat (usually attributable to less reinvestment), and we may of our fair value estimates. An economic moat is a rating are assumed to fade to the perpetuity period over truncate the second stage. structural feature that allows a firm to sustain excess a longer period of time than the returns of narrow-moat profits over a long period of time. We define excess firms, and both will fade slower than no-moat firms, Stage III: Perpetuity economic profits as returns on invested capital (or ROIC) increasing our estimate of their intrinsic value. Once a company's marginal ROIC hits its cost of capital, over and above our estimate of a firm's cost of capital, we calculate a continuing value, using a standard or weighted average cost of capital (or WACC). Without perpetuity formula. At perpetuity, we assume that any a moat, profits are more susceptible to competition. We growth or decline or investment in the business neither have identified five sources of economic moats: creates nor destroys value and that any new investment provides a return in line with estimated WACC. Morningstar Research Methodology for Valuing Companies Because a dollar earned today is worth more than a dollar earned tomorrow, we discount our projections of cash flows in stages I, II, and III to arrive at a total present value of expected future cash flows. Because we are modeling free cash flow to the firm—representing cash available to provide a return to all capital providers—we discount future cash flows using the WACC, which is a weighted average of the costs of equity, debt, and preferred stock (and any other funding sources), using expected future proportionate long-term market-value weights. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 10 of 15 Research Methodology for Valuing Companies 3. Uncertainty Around That Fair Value Estimate Morningstar Equity Research Star Rating Methodology Morningstar's Uncertainty Rating captures a range of likely potential intrinsic values for a company and uses it to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating represents the analysts' ability to bound the estimated value of the shares in a company around the fair value estimate, based on the characteristics of the business underlying the stock, including operating and financial leverage, sales sensitivity to the overall economy, product concentration, pricing power, and other company-specific factors. Analysts consider at least two scenarios in addition to their base case: a bull case and a bear case. Assumptions are chosen such that the analyst believes there is a 25% probability that the company will perform better than the bull case, and a 25% probability that the company will perform worse than the bear case. The distance between the bull and bear cases is an important indicator of the uncertainty underlying the fair value estimate. Our recommended margin of safety widens as our uncertainty of the estimated value of the equity increases. The more uncertain we are about the estimated value of the equity, the greater the discount we require relative to our estimate of the value of the firm before we would recommend the purchase of the Morningstar Star Rating for Stocks The Morningstar Star Ratings for stocks are defined below: shares. In addition, the uncertainty rating provides Once we determine the fair value estimate of a stock, we guidance in portfolio construction based on risk compare it with the stock's current market price on a daily QQQQQ We believe appreciation beyond a fair risk- tolerance. basis, and the star rating is automatically re-calculated at adjusted return is highly likely over a multiyear time frame. the market close on every day the market on which the The current market price represents an excessively Our uncertainty ratings for our qualitative analysis are stock is listed is open. pessimistic outlook, limiting downside risk and maximizing low, medium, high, very high, and extreme. Please note, there is no predefined distribution of stars. upside potential. That is, the percentage of stocks that earn 5 stars can × Low–margin of safety for 5-star rating is a 20% discount fluctuate daily, so the star ratings, in the aggregate, can QQQQ We believe appreciation beyond a fair risk- and for 1-star rating is 25% premium. serve as a gauge of the broader market's valuation. When adjusted return is likely. × Medium–margin of safety for 5-star rating is a 30% there are many 5-star stocks, the stock market as a whole is discount and for 1-star rating is 35% premium. more undervalued, in our opinion, than when very few QQQ Indicates our belief that investors are likely to × High–margin of safety for 5-star rating is a 40% discount companies garner our highest rating. receive a fair risk-adjusted return (approximately cost of and for 1-star rating is 55% premium. equity). × Very High–margin of safety for 5-star rating is a 50% We expect that if our base-case assumptions are true the discount and for 1-star rating is 75% premium. market price will converge on our fair value estimate over QQ We believe investors are likely to receive a less than × Extreme–margin of safety for 5-star rating is a 75% time, generally within three years (although it is impossible fair risk-adjusted return. discount and for 1-star rating is 300% premium. to predict the exact time frame in which market prices may adjust). Q Indicates a high probability of undesirable risk-adjusted 4. Market Price returns from the current market price over a multiyear time The market prices used in this analysis and noted in the Our star ratings are guideposts to a broad audience and frame, based on our analysis. The market is pricing in an report come from exchange on which the stock is listed, individuals must consider their own specific investment excessively optimistic outlook, limiting upside potential and which we believe is a reliable source. goals, risk tolerance, tax situation, time horizon, income leaving the investor exposed to Capital loss. needs, and complete investment portfolio, among other For more details about our methodology, please go to factors. https://shareholders.morningstar.com. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 11 of 15 Research Methodology for Valuing Companies Other Definitions quantitative report and the quantitative ratings, there is no Value Estimate, current market price, and the Quantitative one analyst in which a given report is attributed to; Uncertainty Rating. The rating is expressed as 1-Star, 2-Star, Last Price: Price of the stock as of the close of the market however, Mr. Lee Davidson, Head of Quantitative Research 3-Star, 4-Star, and 5-Star. of the last trading day before date of the report. for Morningstar, Inc., is responsible for overseeing the methodology that supports the quantitative equity ratings Q: the stock is overvalued with a reasonable margin of Stewardship Rating: Represents our assessment of used in this report. As an employee of Morningstar, Inc., safety. management's stewardship of shareholder capital, with Mr. Davidson is guided by Morningstar, Inc.'s Code of Ethics Log (Quant FVE/Price)<–1*Quantitative Uncertainty particular emphasis on capital allocation decisions. Analysts and Personal Securities Trading Policy in carrying out his consider companies' investment strategy and valuation, responsibilities. QQ: the stock is somewhat overvalued. financial leverage, dividend and share buyback policies, Log (Quant FVE/Price) between (–1*Quantitative execution, compensation, related party transactions, and Quantitative Equity Ratings Uncertainty, –0.5*Quantitative Uncertainty) accounting practices. Corporate governance practices are Morningstar's quantitative equity ratings consist of: only considered if they've had a demonstrated impact on (i) Quantitative Fair Value Estimate QQQ: the stock is approximately fairly valued. shareholder value. Analysts assign one of three ratings: (ii) Quantitative Star Rating Log (Quant FVE/Price) between (–0.5*Quantitative "Exemplary," "Standard," and "Poor." Analysts judge (iii) Quantitative Uncertainty Uncertainty, 0.5*Quantitative Uncertainty) stewardship from an equity holder's perspective. Ratings (iv) Quantitative Economic Moat are determined on an absolute basis. Most companies will (v) Quantitative Financial Health QQQQ: the stock is somewhat undervalued. receive a Standard rating, and this is the default rating in (collectively the "Quantitative Ratings"). Log (Quant FVE/Price) between (0.5*Quantitative the absence of evidence that managers have made Uncertainty, 1*Quantitative Uncertainty) exceptionally strong or poor capital allocation decisions. The Quantitative Ratings are calculated daily and derived from the analyst-driven ratings of a company's peers as QQQQQ: the stock is undervalued with a reasonable Quantitative Valuation: Using the below terms, intended to determined by statistical algorithms. Morningstar, Inc. margin of safety. Log (Quant FVE/Price) >1*Quantitative denote the relationship between the security's Last Price ("“Morningstar," "we," "our") calculates Quantitative Uncertainty and Morningstar's quantitative fair value estimate for that Ratings for companies whether it already provides analyst security. ratings and qualitative coverage. In some cases, the Quantitative Uncertainty: Intended to represent Quantitative Ratings may differ from the analyst ratings Morningstar's level of uncertainty about the accuracy of the × Undervalued: Last Price is below Morningstar's because a company's analyst-driven ratings can quantitative fair value estimate. Generally, the lower the quantitative fair value estimate. significantly differ from other companies in its peer group. quantitative Uncertainty, the narrower the potential range × Fairly Valued: Last Price is in line with Morningstar's of outcomes for that particular company. The rating is quantitative fair value estimate. Quantitative Fair Value Estimate: Intended to represent expressed as Low, Medium, High, Very High, and Extreme. × Overvalued: Last Price is above Morningstar's Morningstar's estimate of the per share dollar amount that quantitative fair value estimate. a company's equity is worth today. Morningstar calculates × Low: the interquartile range for possible fair values is less the quantitative fair value estimate using a statistical model than 10%. Risk Warning derived from the fair value estimate Morningstar's equity × Medium: the interquartile range for possible fair values is Please note that investments in securities are subject to analysts assign to companies. Please go to less than 15% but greater than 10%. market and other risks and there is no assurance or https://shareholders.morningstar.com for information about × High: the interquartile range for possible fair values is guarantee that the intended investment objectives will be fair value estimates Morningstar's equity analysts assign to less than 35% but greater than 15%. achieved. Past performance of a security may or may not be companies. × Very High: the interquartile range for possible fair values sustained in future and is no indication of future is less than 80% but greater than 35%. performance. A security investment return and an investor's Quantitative Economic Moat: Intended to describe the × Extreme: the interquartile range for possible fair values is principal value will fluctuate so that, when redeemed, an strength of a firm's competitive position. It is calculated greater than 80%. investor's shares may be worth more or less than their using an algorithm designed to predict the Economic Moat original cost. A security's current investment performance rating a Morningstar analyst would assign to the stock. The Quantitative Financial Health: Intended to reflect the may be lower or higher than the investment performance rating is expressed as Narrow, Wide, or None. probability that a firm will face financial distress in the near noted within the report. Morningstar's Uncertainty Rating future. The calculation uses a predictive model designed to serves as a useful data point with respect to sensitivity × Narrow: assigned when the probability of a stock anticipate when a company may default on its financial analysis of the assumptions used in our determining a fair receiving a "Wide Moat" rating by an analyst is greater obligations. The rating is expressed as Weak, Moderate, value price. than 70% but less than 99%. and Strong. × Wide: assigned when the probability of a stock receiving Quantitative Equity Reports Overview a "Wide Moat" rating by an analyst is greater than 99%. × Weak: assigned when Quantitative Financial Health <0.2 The quantitative report on equities consists of data, × None: assigned when the probability of an analyst × Moderate: assigned when Quantitative Financial Health statistics and quantitative equity ratings on equity receiving a "Wide Moat" rating by an analyst is less than is between 0.2 and 0.7 securities. Morningstar, Inc.'s quantitative equity ratings are 70%. × Strong: assigned when Quantitative Financial Health >0.7 forward looking and are generated by a statistical model that is based on Morningstar Inc.'s analyst-driven equity Quantitative Star Rating: Intended to be the summary ratings and quantitative statistics. Given the nature of the rating based on the combination of our Quantitative Fair ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 12 of 15 Research Methodology for Valuing Companies Other Definitions Last Close: Price of the stock as of the close of the market of the last trading day before date of the report. Quantitative Valuation: Using the below terms, intended to denote the relationship between the security's Last Price and Morningstar's quantitative fair value estimate for that security. × Undervalued: Last Price is below Morningstar's quantitative fair value estimate. × Fairly Valued: Last Price is in line with Morningstar's quantitative fair value estimate. × Overvalued: Last Price is above Morningstar's quantitative fair value estimate. This Report has not been made available to the issuer of the security prior to publication. Risk Warning Please note that investments in securities are subject to market and other risks and there is no assurance or guarantee that the intended investment objectives will be achieved. Past performance of a security may or may not be sustained in future and is no indication of future performance. A security investment return and an investor's principal value will fluctuate so that, when redeemed, an investor's shares may be worth more or less than their original cost. A security's current investment performance may be lower or higher than the investment performance noted within the report. The quantitative equity ratings are not statements of fact. Morningstar does not guarantee the completeness or accuracy of the assumptions or models used in determining the quantitative equity ratings. In addition, there is the risk that the price target will not be met due to such things as unforeseen changes in demand for the company's products, changes in management, technology, economic development, interest rate development, operating and/or material costs, competitive pressure, supervisory law, exchange rate, and tax rate. For investments in foreign markets there are further risks, generally based on exchange rate changes or changes in political and social conditions. A change in the fundamental factors underlying the quantitative equity ratings can mean that the valuation is subsequently no longer accurate. For more information about Morningstar's quantitative methodology, please visit http://global.morningstar.com/equitydisclosures. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 13 of 15 Tesla Inc TSLA (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship Q 1,374.39 USD 751.00 USD 1.83 — 0.00 256.13 Auto Manufacturers Standard 11 Aug 2020 11 Aug 2020 23 Jul 2020 11 Aug 2020 11 Aug 2020 11 Aug 2020 21:42, UTC 03:11, UTC General Disclosure The analysis within this report is prepared by the person (s) noted in their capacity as an analyst for Morningstar’s equity research group. The equity research group consists of various Morningstar, Inc. subsidiaries (“Equity Research Group)”. In the United States, that subsidiary is Morningstar Research Services LLC, which is registered with and governed by the U.S. Securities and Exchange Commission. The opinions expressed within the report are given in good faith, are as of the date of the report and are subject to change without notice. Neither the analyst nor Equity Research Group commits themselves in advance to whether and in which intervals updates to the report are expected to be made. The written analysis and Morningstar Star Rating for stocks are statements the Report and are subject to change. While financial situation or particular needs of any specific of opinions; they are not statements of fact. Morningstar has obtained data, statistics and recipient. This publication is intended to provide information from sources it believes to be reliable, information to assist institutional investors in making The Equity Research Group believes its analysts make Morningstar does not perform an audit or seeks their own investment decisions, not to provide a reasonable effort to carefully research information independent verification of any of the data, statistics, investment advice to any specific investor. Therefore, contained in the analysis. The information on which the and information it receives. investments discussed and recommendations made analysis is based has been obtained from sources herein may not be suitable for all investors: recipients believed to be reliable such as, for example, the The quantitative equity ratings are not a market call, must exercise their own independent judgment as to company’s financial statements filed with a regulator, and do not replace the User or User’s clients from the suitability of such investments and recommendations company website, Bloomberg and any other the conducting their own due-diligence on the security. The in the light of their own investment objectives, relevant press sources. Only the information obtained quantitative equity rating is not a suitability experience, taxation status and financial position. from such sources is made available to the issuer who assessment; such assessments take into account may is the subject of the analysis, which is necessary to factors including a person’s investment objective, The information, data, analyses and opinions presented properly reconcile with the facts. Should this sharing of personal and financial situation, and risk tolerance all herein are not warranted to be accurate, correct, information result in considerable changes, a statement of which are factors the quantitative equity rating complete or timely. Unless otherwise provided in a of that fact will be noted within the report. While the statistical model does not and did not consider. separate agreement, neither Morningstar, Inc. or the Equity Research Group has obtained data, statistics and Equity Research Group represents that the report information from sources it believes to be reliable, Prices noted with the Report are the closing prices on contents meet all of the presentation and/or disclosure neither the Equity Research Group nor Morningstar, Inc. the last stock-market trading day before the publication standards applicable in the jurisdiction the recipient is performs an audit or seeks independent verification of date stated, unless another point in time is explicitly located. any of the data, statistics, and information it receives. stated. Except as otherwise required by law or provided for in General Quantitative Disclosure General Disclosure (applicable to both Quantitative a separate agreement, the analyst, Morningstar, Inc. The Quantitative Equity Report (“Report”) is derived and Qualitative Research) and the Equity Research Group and their officers, from data, statistics and information within Unless otherwise provided in a separate agreement, directors and employees shall not be responsible or Morningstar, Inc.’s database as of the date of the Report recipients accessing this report may only use it in the liable for any trading decisions, damages or other and is subject to change without notice. The Report is country in which the Morningstar distributor is based. losses resulting from, or related to, the information, for informational purposes only, intended for financial Unless stated otherwise, the original distributor of the data, analyses or opinions within the report. The Equity professionals and/or sophisticated investors (“Users”) report is Morningstar Research Services LLC, a U.S.A. Research Group encourages recipients of this report to and should not be the sole piece of information used by domiciled financial institution. read all relevant issue documents (e.g., prospectus) such Users or their clients in making an investment pertaining to the security concerned, including without decision. The quantitative equity ratings noted the This report is for informational purposes only and has limitation, information relevant to its investment Report are provided in good faith, are as of the date of no regard to the specific investment objectives, objectives, risks, and costs before making an ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Morningstar Equity Analyst Report |Page 14 of 15 Tesla Inc TSLA (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship Q 1,374.39 USD 751.00 USD 1.83 — 0.00 256.13 Auto Manufacturers Standard 11 Aug 2020 11 Aug 2020 23 Jul 2020 11 Aug 2020 11 Aug 2020 11 Aug 2020 21:42, UTC 03:11, UTC investment decision and when deemed necessary, to currently covers and provides written analysis on seek the advice of a legal, tax, and/or accounting • Neither Morningstar, Inc. or the Equity Research please contact your local Morningstar office. In professional. 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Morningstar Australasia Pty Ltd is the provider Morningstar, Inc. or its affiliates to any registration or Group has been a lead manager or co-lead manager of the general advice (‘the Service’) and takes licensing requirements in such jurisdiction. over the previous 12-months of any publicly disclosed responsibility for the production of this report. The offer of financial instruments of the issuer. Service is provided through the research of investment Where this report is made available in a language other products. To the extent the Report contains general than English and in the case of inconsistencies between • Morningstar, Inc.’s investment management group advice it has been prepared without reference to an the English and translated versions of the report, the does have arrangements with financial institutions to investor’s objectives, financial situation or needs. 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Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Morningstar Equity Analyst Report |Page 15 of 15 Tesla Inc TSLA (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship Q 1,374.39 USD 751.00 USD 1.83 — 0.00 256.13 Auto Manufacturers Standard 11 Aug 2020 11 Aug 2020 23 Jul 2020 11 Aug 2020 11 Aug 2020 11 Aug 2020 21:42, UTC 03:11, UTC SEBI or any other legal/regulatory body. Morningstar Investment Adviser India Private Limited is a wholly owned subsidiary of Morningstar Investment Management LLC. In India, Morningstar Investment Adviser India Private Limited has one associate, Morningstar India Private Limited, which provides data related services, financial data analysis and software development. The Research Analyst has not served as an officer, director or employee of the fund company within the last 12 months, nor has it or its associates engaged in market making activity for the fund company. *The Conflicts of Interest disclosure above also applies to relatives and associates of Manager Research Analysts in India # The Conflicts of Interest disclosure above also applies to associates of Manager Research Analysts in India. The terms and conditions on which Morningstar Investment Adviser India Private Limited offers Investment Research to clients, varies from client to client, and are detailed in the respective client agreement. For recipients in Japan: The Report is distributed by Ibbotson Associates Japan, Inc., which is regulated by Financial Services Agency. Neither Ibbotson Associates Japan, Inc., nor its representatives, are acting or will be deemed to be acting as an investment advisor to any recipients of this information. For recipients in Singapore: This Report is distributed by Morningstar Investment Adviser Singapore Pte Limited, which is licensed by the Monetary Authority of Singapore to provide financial advisory services in Singapore. Investors should consult a financial adviser regarding the suitability of any investment product, taking into account their specific investment objectives, financial situation or particular needs, before making any investment decisions. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
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