What are the reasons why Morgan Stanley has chosen Tesla as its top pick in the automotive stock sector?


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Morgan Stanley has chosen Tesla (TSLA) as its top pick in the automotive stock sector for several reasons:
- Market Position in Zero-Emission Vehicles: Tesla's dominant position in the zero-emission vehicle (ZEV) credit market is a key factor. The company reported ZEV credit revenue of approximately $2,000 per unit, more than double the recent run-rate. As legacy automakers scale back on EV plans and EPA standards tighten, Morgan Stanley expects Tesla's market position for lucrative ZEV credits to strengthen1.
- Strategic Restructuring and Cost-Cutting: Tesla's effective cost-cutting and restructuring efforts have been recognized by Morgan Stanley. The company's second-quarter results aligned closely with consensus expectations, exceeding Morgan Stanley's predictions when excluding restructuring charges and regulatory credits. Tesla has lowered its breakeven point, enabling positive cash flow even with 69% EV capacity utilization last quarter1.
- Growth Potential in Energy Business: Morgan Stanley believes that Tesla's energy business could potentially grow to be worth more than the company's auto business in the future. Investors are likely to focus on firms that address climate change-related issues, and Tesla's strategic redirection of resources away from auto manufacturing could be a factor21.
- Autonomous Driving and Future of EV Demand: While Morgan Stanley has flagged concerns over Tesla's ability to commercialize autonomous driving technology in China and the future of EV demand, the company's position at the "epicenter of the theme" of AI and autonomy applications makes it a compelling investment1.
- Financial Performance: Tesla's financial performance, including its ability to generate revenue and profit, is a significant factor in Morgan Stanley's decision. The company's ability to manage its exposure to China risks and the increasing contribution from recurring services revenue are also seen as bolstering the company's prospects1.
These factors, combined with the expectation of a 40% upside to TSLA stock, led Morgan Stanley to elevate Tesla as its top pick in the U.S. autos sector31.
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Tesla stock is a new top pick at Morgan Stanley
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