Morgan Stanley's Bold Prediction: Tesla To Hit $310 By Next Year!
3min read Despite the poor Q2 earnings report that caused Tesla's stock price to plunge more than 10% at one point and kept the electric vehicle leader's stock price around the $220 mark for most of last week, it seems that Morgan Stanley's bullish sentiment on Tesla has not been dampened.
Can Tesla's Stock Still Rise By 40%?
The renowned international investment bank has listed Musk's electric vehicle company as the top pick in the U.S. automotive industry and believes that based on Tesla's future dominance in zero-emission vehicle credits, the company is expected to see a stock price increase of up to 40% next year. Morgan Stanley analyst Adam Jonas has maintained an overweight rating for Tesla in his report and set a target price as high as $310.
More controllable expectations in Tesla's vehicle business, along with powerful emerging drivers of value, make us confident that it will become the top pick among U.S. automotive stocks next, Jonas wrote in his report.
Driven by this report, Tesla's stock price rose by a rare 5.6% last night but has not yet returned to the position before the release of the Q2 report.
Jonas attributes part of the bullish outlook for Tesla's stock to the company's efforts in cost-cutting over the past few months, which are considered to have achieved significant results against the backdrop of slowing electric vehicle sales and a lack of new growth drivers.
The over $0.6 billion of restructuring charges recognized by Tesla in the quarter, combined with other actions, has helped lower the breakeven point to levels where Tesla can still generate positive cash flow at an enterprise level, even with EV capacity utilization at 69% last quarter, the analyst pointed out.
ZEV Market Has A Big Shot Potential
In Jonas's view, Tesla's dominance in the zero-emission vehicle (ZEV) credit market, progress in autonomous driving, and energy storage business will help drive further increases in the company's stock price.
Since Tesla only produces electric vehicles, it has many regulatory compliance credits that can be sold to other car manufacturers and has gradually become an indispensable source of income for the company.
Tesla recognized zero-emission vehicle credit revenue equating to around $2k/unit in the quarter, more than 2x the recent run-rate. We believe as more legacy OEMs pull back on their EV plans, combined with increasingly stringent EPA standards, that Tesla may achieve an even more dominant position in the market for highly lucrative ZEV credits going forward, Morgan Stanley pointed out.
We anticipate other car companies such as GM and STLA may be wading more deeply into the ZEV market as buyers in the quarters ahead. We estimate Tesla may account for as much as ½ the credit sales in the market, supporting a 100% margin business for Tesla that may not be anticipated by the investment community at this time.
From the data, the buying and selling of credits does have the opportunity to open up a new revenue channel for new energy companies like Tesla: For example, Ford, which mainly sells oil vehicles, stated in the recent quarterly earnings report that in order to meet environmental compliance requirements, the company's expenditure on regulatory credits in North America and Europe has reached as high as $3.8 billion.
Energy Storage Will Be The Key
The energy business is also considered by Morgan Stanley to be a highlight of Tesla's future, especially with the construction of artificial intelligence data centers and the aging of the power grid in some areas, leading to an increase in overall energy demand. In their view, by 2030, Tesla's energy business is expected to increase after-tax net operating profit by $3.95 billion, which translates to an increase of more than $1 per share, and Morgan Stanley's valuation of Tesla's energy business is $130 billion.
In the last quarter, Tesla's revenue from the energy storage business has reached $3.014 billion, and the newly added installation in a single quarter has achieved more than double growth in both year-on-year and quarter-on-quarter terms, reaching 9.4 GWh. Coupled with the 4.1GWh of energy storage installation in the first quarter, Tesla's cumulative energy storage installation in the first half of the year has reached 13.5GWh, which is close to the 14.724GWh of energy storage installation in 2023.
In addition, the gross profit margin of Tesla's energy storage business has reached 24.55%, far higher than the company's overall 17.95%, further proving the profitability and strong growth potential of the business.
Recent indicators of climate change are bringing even greater attention to Tesla's dominant position in energy storage. Severe storms and unusual global weather phenomena (including heat waves) may be focusing investor attention on companies that may be well positioned to address climate- and energy-related problems, said Morgan Stanley analyst Jonas. We see potential for the Tesla Energy business to be worth more than the autos business.
At the same time, Tesla's potential opportunities in AI and autonomous driving applications are also a key growth point, especially considering that FSD is expected to enter overseas markets such as China in the second half of the year, as well as the official launch of the eye-catching unmanned taxi Robotaxi.
However, the specific R&D process of autonomous driving, future commercialization capabilities, and a series of safety issues in recent years have made Morgan Stanley less confident in Tesla's prospects in this direction.