Investor's Corner

Tesla (TSLA) can “harvest” far more IRA benefits than peers: Morgan Stanley

Credit: Tesla Asia/Twitter

The Inflation Reduction Act (IRA) could have a significant impact on the electric vehicle sector, particularly for Tesla (NASDAQ:TSLA). This was according to Morgan Stanley analysts, who noted that investors might be underestimating the potential benefits the legislation could provide to Tesla over the next few years.

Morgan Stanley analyst Adam Jonas and his team noted that Tesla has achieved cost leadership and high margins through its vertically integrated business model, technological innovation, and manufacturing expertise. While many investors expect the IRA to help the entire electric vehicle industry, the analyst and his team noted that the legislation is especially advantageous to Tesla.

“Many auto analysts believe the Inflation Reduction Act (IRA) helps lift all EV boats… that any incentive is better than no incentive. We don’t think so. Tesla can ‘harvest’ far more IRA benefits than its peers, with benefits being passed through to the customer, paying market share (not margins).

“Pull up Tesla’s 1Q transcript and do a text search for ‘IRA’ or ‘Inflation Reduction Act.’ No mention at all. Didn’t come up once. Not because the IRA doesn’t matter for Tesla. Tesla is likely to be by far the biggest beneficiary of the IRA within EV land in both absolute and relative terms,” Jonas wrote.

The Morgan Stanley analysts also shared their expected IRA breakdown for Tesla.

“Since Tesla’s battery production involves proprietary manufacturing of 4680 cells at Giga Austin, eventual ramp of 100GWh of production at Giga Nevada, and joint production with Panasonic via JV, we assume Tesla will retain 75% of the Advanced Manufacturing Production Tax Credit ($45/KWh for cells and packs as provisioned in Section 45X), while Panasonic will retain ~25%. We assume General Motors (GM) splits the tax credit 50%/50% with LGES, and Ford (F) 50%/50% with SK On,” the analyst wrote.

Morgan Stanley maintained an “Overweight” rating on Tesla and a price target of $200. Shares of Tesla fell 1.54% on Tuesday, landing at $169.15 at the end of the day.

The Teslarati team would appreciate hearing from you. If you have any tips, contact me at maria@teslarati.com or via Twitter @Writer_01001101.

Tesla (TSLA) can “harvest” far more IRA benefits than peers: Morgan Stanley
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