Investor's Corner
Tesla (TSLA) S&P inclusion makes a believer out of a notorious skeptic
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.
* Morgan Stanley Upgrades Tesla to Overweight, Raises PT to $540$TSLA
— David Tayar (@davidtayar5) November 18, 2020
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.
“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.
Tesla stock (NASDAQ: TSLA) closed at an all-time high on Tuesday, jumping over 3 percent during the day and finishing at $489.88.
The price beats the previous record close, which was $479.86.
Shares have had a crazy year, dipping more than 40 percent from the start of the year. The stock then started to recover once again around late April, when its price started to climb back up from the low $200 level.
This week, Tesla started to climb toward its highest levels ever, as it was revealed on Sunday that the company was testing driverless Robotaxis in Austin. The spike in value pushed the company’s valuation to $1.63 trillion.
Tesla Robotaxi goes driverless as Musk confirms Safety Monitor removal testing
It is the seventh-most valuable company on the market currently, trailing Nvidia, Apple, Alphabet (Google), Microsoft, Amazon, and Meta.
Shares closed up $14.57 today, up over 3 percent.
The stock has gone through a lot this year, as previously mentioned. Shares tumbled in Q1 due to CEO Elon Musk’s involvement with the Department of Government Efficiency (DOGE), which pulled his attention away from his companies and left a major overhang on their valuations.
However, things started to rebound halfway through the year, and as the government started to phase out the $7,500 tax credit, demand spiked as consumers tried to take advantage of it.
Q3 deliveries were the highest in company history, and Tesla responded to the loss of the tax credit with the launch of the Model 3 and Model Y Standard.
Additionally, analysts have announced high expectations this week for the company on Wall Street as Robotaxi continues to be the focus. With autonomy within Tesla’s sights, things are moving in the direction of Robotaxi being a major catalyst for growth on the Street in the coming year.
Elon Musk
Tesla needs to come through on this one Robotaxi metric, analyst says
“We think the key focus from here will be how fast Tesla can scale driverless operations (including if Tesla’s approach to software/hardware allows it to scale significantly faster than competitors, as the company has argued), and on profitability.”
Tesla needs to come through on this one Robotaxi metric, Mark Delaney of Goldman Sachs says.
Tesla is in the process of rolling out its Robotaxi platform to areas outside of Austin and the California Bay Area. It has plans to launch in five additional cities, including Houston, Dallas, Miami, Las Vegas, and Phoenix.
However, the company’s expansion is not what the focus needs to be, according to Delaney. It’s the speed of deployment.
The analyst said:
“We think the key focus from here will be how fast Tesla can scale driverless operations (including if Tesla’s approach to software/hardware allows it to scale significantly faster than competitors, as the company has argued), and on profitability.”
Profitability will come as the Robotaxi fleet expands. Making that money will be dependent on when Tesla can initiate rides in more areas, giving more customers access to the program.
There are some additional things that the company needs to make happen ahead of the major Robotaxi expansion, one of those things is launching driverless rides in Austin, the first city in which it launched the program.
This week, Tesla started testing driverless Robotaxi rides in Austin, as two different Model Y units were spotted with no occupants, a huge step in the company’s plans for the ride-sharing platform.
Tesla Robotaxi goes driverless as Musk confirms Safety Monitor removal testing
CEO Elon Musk has been hoping to remove Safety Monitors from Robotaxis in Austin for several months, first mentioning the plan to have them out by the end of 2025 in September. He confirmed on Sunday that Tesla had officially removed vehicle occupants and started testing truly unsupervised rides.
Although Safety Monitors in Austin have been sitting in the passenger’s seat, they have still had the ability to override things in case of an emergency. After all, the ultimate goal was safety and avoiding any accidents or injuries.
Goldman Sachs reiterated its ‘Neutral’ rating and its $400 price target. Delaney said, “Tesla is making progress with its autonomous technology,” and recent developments make it evident that this is true.
Investor's Corner
Tesla gets bold Robotaxi prediction from Wall Street firm
Last week, Andrew Percoco took over Tesla analysis for Morgan Stanley from Adam Jonas, who covered the stock for years. Percoco seems to be less optimistic and bullish on Tesla shares, while still being fair and balanced in his analysis.
Tesla (NASDAQ: TSLA) received a bold Robotaxi prediction from Morgan Stanley, which anticipates a dramatic increase in the size of the company’s autonomous ride-hailing suite in the coming years.
Last week, Andrew Percoco took over Tesla analysis for Morgan Stanley from Adam Jonas, who covered the stock for years. Percoco seems to be less optimistic and bullish on Tesla shares, while still being fair and balanced in his analysis.
Percoco dug into the Robotaxi fleet and its expansion in the coming years in his latest note, released on Tuesday. The firm expects Tesla to increase the Robotaxi fleet size to 1,000 vehicles in 2026. However, that’s small-scale compared to what they expect from Tesla in a decade.
Tesla expands Robotaxi app access once again, this time on a global scale
By 2035, Morgan Stanley believes there will be one million Robotaxis on the road across multiple cities, a major jump and a considerable fleet size. We assume this means the fleet of vehicles Tesla will operate internally, and not including passenger-owned vehicles that could be added through software updates.
He also listed three specific catalysts that investors should pay attention to, as these will represent the company being on track to achieve its Robotaxi dreams:
- Opening Robotaxi to the public without a Safety Monitor. Timing is unclear, but it appears that Tesla is getting closer by the day.
- Improvement in safety metrics without the Safety Monitor. Tesla’s ability to improve its safety metrics as it scales miles driven without the Safety Monitor is imperative as it looks to scale in new states and cities in 2026.
- Cybercab start of production, targeted for April 2026. Tesla’s Cybercab is a purpose-built vehicle (no steering wheel or pedals, only two seats) that is expected to be produced through its state-of-the-art unboxed manufacturing process, offering further cost reductions and thus accelerating adoption over time.
Robotaxi stands to be one of Tesla’s most significant revenue contributors, especially as the company plans to continue expanding its ride-hailing service across the world in the coming years.
Its current deployment strategy is controlled and conservative to avoid any drastic and potentially program-ruining incidents.
So far, the program, which is active in Austin and the California Bay Area, has been widely successful.
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