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Tesla (TSLA) S&P inclusion makes a believer out of a notorious skeptic

(Credit: Unplugged Performance)

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Tesla (NASDAQ: TSLA) is headed for the S&P 500, and it’s making believers out of notorious skeptic Adam Jonas of Morgan Stanley, who has remained bearish on the automaker for over two years. Jonas has held Sell or Hold ratings on TSLA shares since October 2018, and for the first time since then, he is recommending that investors buy stock in the electric automaker.

“Tesla is on the verge of a profound model shift from selling cars (volume x price) to generating high margin, recurring software and services revenue (platform users x ARPU),” Jonas wrote in a note to investors. “The car business is the entry ticket to unlocking much larger TAMs. We see ~22% upside to PT, ~$142 upside to bull case.”

Jonas and Morgan Stanley upgraded the rating on TSLA stock from Equal-weight to Overweight and revised the price target from $360 to $540. At the time of writing, TSLA shares were trading at $444.96.

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Morgan Stanley and Jonas have shared a relatively bearish outlook on TSLA stock for over two years. Questioning the company’s value in the automotive market, Jonas has never seen Tesla as the dominating entity that it is, especially in the EV sector. Instead, the firm and the analyst alike have recommended that investors stay away from TSLA, expecting a slowing in momentum after strong spikes in stock price. Only recently have TSLA shares remained relatively consistent in price. That is, up until the S&P 500 announced that the automaker would be joining the index in late December, which sent the stock surging up 13% in after-hours trading on Monday evening.

However, the company’s five consecutive profitable quarters, along with sustained growth in production and delivery figures, except Q2 2020, which was slowed by the COVID-19 pandemic, has finally convinced Jonas to take a bullish outlook on TSLA.

Admitting that an early-year report, which analyzed Tesla’s sensitivity in varying scenarios, was not as in-depth as the firm would have liked, Morgan Stanley revisited TSLA in a more recent study. “Since that time, we have had the opportunity to conduct more proprietary research on this topic, tapping into Morgan Stanley’s leading technology equity research team. At the same time, Tesla has continued to develop its services/platform business to a level where we feel that is appropriate for investors to consider to change how they model the company’s revenue and profit streams.”

The firm added that Tesla Energy and Tesla Insurance were both factored into the base case for the first time with the newly-revised price target and rating.

More revisions could come after the company discloses its end-of-year numbers.

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“Tesla is currently generating highly profitable cash flow generating service revenue — this business exists today,” he writes. “Due to the growth of service revenue, improved capability (which may trigger step changes in the recognition of deferred revenue) and earnings materiality, we believe it is only a matter of time before investors are provided with far greater levels of disclosure that can trigger a further re-rating of the equity.”

Jonas’ and Morgan Stanley’s backtrack on TSLA stock shows that believers are made out of skeptics. Before too long, analysts who remain bearish on the company’s stock will likely have to retrace their steps and revise their outlooks as Jonas did here.

Disclaimer: Joey Klender is a TSLA Shareholder.

Joey has been a journalist covering electric mobility at TESLARATI since August 2019. In his spare time, Joey is playing golf, watching MMA, or cheering on any of his favorite sports teams, including the Baltimore Ravens and Orioles, Miami Heat, Washington Capitals, and Penn State Nittany Lions. You can get in touch with joey at joey@teslarati.com. He is also on X @KlenderJoey. If you're looking for great Tesla accessories, check out shop.teslarati.com

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Investor's Corner

Shareholder group urges Nasdaq probe into Elon Musk’s Tesla 2025 CEO Interim Award

The SOC Investment Group represents pension funds tied to more than two million union members, many of whom hold shares in TSLA.

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Credit: xAI/X

An investment group is urging Nasdaq to investigate Tesla (NASDAQ:TSLA) over its recent $29 billion equity award for CEO Elon Musk. 

The SOC Investment Group, which represents pension funds tied to more than two million union members—many of whom hold shares in TSLA—sent a letter to the exchange citing “serious concerns” that the package sidestepped shareholder approval and violated compensation rules.

Concerns over Tesla’s 2025 CEO Interim Award

In its August 19 letter to Nasdaq enforcement chief Erik Wittman, SOC alleged that Tesla’s board improperly granted Musk a “2025 CEO Interim Award” under the company’s 2019 Equity Incentive Plan. That plan, the group noted, explicitly excluded Musk when it was approved by shareholders. SOC argued that the new equity grant effectively expanded the plan to cover Musk, a material change that should have required a shareholder vote under Nasdaq rules.

The $29 billion package was designed to replace Musk’s overturned $56 billion award from 2018, which the Delaware Chancery Court struck down, prompting Tesla to file an appeal to the Delaware Supreme Court. The interim award contains restrictions: Musk must remain in a leadership role until August 2027, and vested shares cannot be sold until 2030, as per a Yahoo Finance report.

Even so, critics such as SOC have argued that the plan does not have of performance targets, calling it a “fog-the-mirror” award. This means that “If you’re around and have enough breath left in you to fog the mirror, you get them,” stated Brian Dunn, the director of the Institute for Comprehension Studies at Cornell University.

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SOC’s Tesla concerns beyond Elon Musk

SOC’s concerns extend beyond the mechanics of Musk’s pay. The group has long questioned the independence of Tesla’s board, opposing the reelection of directors such as Kimbal Musk and James Murdoch. It has also urged regulators to review Tesla’s governance practices, including past proposals to shrink the board. 

SOC has also joined initiatives calling for Tesla to adopt comprehensive labor rights policies, including noninterference with worker organizing and compliance with global labor standards. The investment group has also been involved in webinars and resolutions highlighting the risks related to Tesla’s approach to unions, as well as labor issues across several countries.

Tesla has not yet publicly responded to SOC’s latest letter, nor to requests for comment.

The SOC’s letter can be viewed below.

Nasdaq+Letter Tsla Socig Final by Simon Alvarez

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Investor's Corner

Tesla investors may be in for a big surprise

All signs point toward a strong quarter for Tesla in terms of deliveries. Investors could be in for a surprise.

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(Credit: Tesla)

Tesla investors have plenty of things to be ecstatic about, considering the company’s confidence in autonomy, AI, robotics, cars, and energy. However, many of them may be in for a big surprise as the end of the $7,500 EV tax credit nears. On September 30, it will be gone for good.

This has put some skepticism in the minds of some investors: the lack of a $7,500 discount for buying a clean energy vehicle may deter many people from affording Tesla’s industry-leading EVs.

Tesla warns consumers of huge, time-sensitive change coming soon

The focus on quarterly deliveries, while potentially waning in terms of importance to the future, is still a big indicator of demand, at least as of now. Of course, there are other factors, most of them economic.

The big push to make the most of the final quarter of the EV tax credit is evident, as Tesla is reminding consumers on social media platforms and through email communications that the $7,500 discount will not be here forever. It will be gone sooner rather than later.

It appears the push to maximize sales this quarter before having to assess how much they will be impacted by the tax credit’s removal is working.

Delivery Wait Time Increases

Wait times for Tesla vehicles are increasing due to what appears to be increased demand for the company’s vehicles. Recently, Model Y delivery wait times were increased from 1-3 weeks to 4-6 weeks.

This puts extra pressure on consumers to pull the trigger on an order, as delivery must be completed by the cutoff date of September 30.

Delivery wait times may have gone up due to an increase in demand as consumers push to make a purchase before losing that $7,500 discount.

More People are Ordering

A post on X by notable Tesla influencer Sawyer Merritt anecdotally shows he has been receiving more DMs than normal from people stating that they’re ordering vehicles before the end of the tax credit:

It’s not necessarily a confirmation of more orders, but it could be an indication that things are certainly looking that way.

Why Investors Could Be Surprised

Tesla investors could see some positive movement in stock price following the release of the Q3 delivery report, especially if all signs point to increased demand this quarter.

We reported previously that this could end up being a very strong rebounding quarter for Tesla, with so many people taking advantage of the tax credit.

Whether the delivery figures will be higher than normal remains to be seen. But all indications seem to point to Q3 being a very strong quarter for Tesla.

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Tesla bear Guggenheim sees nearly 50% drop off in stock price in new note

Tesla bear Guggenheim does not see any upside in Robotaxi.

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tesla showroom
Credit: Tesla

Tesla bear Guggenheim is still among the biggest non-believers in the company’s overall mission and its devotion to solving self-driving.

In a new note to investors on Thursday, analyst Ronald Jewsikow reiterated his price target of $175, a nearly 50 percent drop off, with a ‘Sell’ rating, all based on skepticism regarding Tesla’s execution of the Robotaxi platform.

A few days ago, Tesla CEO Elon Musk said the company’s Robotaxi platform would open to the public in September, offering driverless rides to anyone in the Austin area within its geofence, which is roughly 90 square miles large.

Tesla CEO Elon Musk confirms Robotaxi is opening to the public: here’s when

However, Jewsikow’s skepticism regarding this timeline has to do with what’s going on inside of the vehicles. The analyst was willing to give props to Robotaxi, saying that Musk’s estimation of a September public launch would be a “key step” in offering the service to a broader population.

Where Jewsikow’s real issue lies is with Tesla’s lack of transparency on the Safety Monitors, and how bulls are willing to overlook their importance.

Much of this bullish mentality comes from the fact that the Monitors are not sitting in the driver’s seat, and they don’t have anything to do with the overall operation of the vehicle.

Musk also said last month that reducing Safety Monitors could come “in a month or two.”

Instead, they’re just there to make sure everything runs smoothly.

Jewsikow said:

“While safety drivers will remain, and no timeline has been provided for their removal, bulls have been willing to overlook the optics of safety drivers in TSLA vehicles, and we see no reason why that would change now.”

He also commented on Musk’s recent indication that Tesla was working on a 10x parameter count that could help make Full Self-Driving even more accurate. It could be one of the pieces to Tesla solving autonomy.

Jewsikow added:

“Perhaps most importantly for investors bullish on TSLA for the fleet of potential FSD-enabled vehicles today, the 10x higher parameter count will be able to run on the current generation of FSD hardware and inference compute.”

Elon Musk teases crazy new Tesla FSD model: here’s when it’s coming

Tesla shares are down just about 2 percent today, trading at $332.47.

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