Morgan Stanley’s Bull Case For Tesla Goes Past Hot Cars – Forbes

Posted: Tuesday, February 25, 2014

Just 42 years old, billionaire Elon Musk has already worn many hats. He made his name in digital payments (PayPal) before turning to electric cars (Tesla Motors Tesla Motors), space exploration (SpaceX) and even high speed tube travel (Hyperloop).

Tuesday shares of his car company surged more than 18% after Morgan Stanley Morgan Stanley issued a report arguing ten-year-old Tesla Motors could follow in its CEO’s multi-faceted footsteps.

Morgan Stanley analyst Adam Jonas wrote, “Tesla’s quest to disrupt a trillion $ car industry offers an adjacent opportunity to disrupt a trillion $ electric utility industry. If it can be a leader in commercializing battery packs, investors may never look at Tesla the same way again.”

Morgan Stanley more than doubled its price target for the stock to $320 from $153. As a result, the stock climbed as high as $259.20 Tuesday morning, a new alltime high for market darling which is up 634% year-over-year.

Morgan Stanley’s optimism about Tesla’s future in energy storage stems in part from the car company saying it will work with partners to create the largest Li-ion battery pack facility in the world and create a new “gigafactory” which will combine all elements of battery production. “We reflect the potential for lower battery costs through higher sales volume nearly doubling Tesla’s share of the global car market to 90bps by 2028, driving our target increase. If Tesla can become the world’s low-cost producer in energy storage, we see significant optionality for Tesla to disrupt adjacent industries.”

Overall Morgan Stanley expects Tesla’s revenue — $2.5 billion in 2013 — to  increase more than ten-fold by 2016, 30-fold by 2020 and a staggering 60-fold by 2028. The bank points out that the outlook is “highly dependent on technological advancement” but notes that no company is in a better position to develop the car and car company of the future. With a fully electric and software “connected” fleet, “the world’s only Silicon Valley-based car company has the upper hand.”

Morgan Stanley expects software to play a large role in the car industry going forward and for Tesla to lead the way in driverless cars. “We see autonomous cars contributing $5.6 trillion in economic savings globally. Tesla remains our top pick in US autos. Tesla is an extremely ambitious company for whom flooding the market with fun-to-drive EVs and giving competitors a headache might not be the endgame. Tesla’s limited addressable market, a long-time bear thesis on the stock, appears well up for grabs here.”

Other Tesla watchers, however, are not quite ready to call Musk’s brain-child king of the car future.

In another note out this morning  analyst James Albertine of the investment bank Stifel, reiterated unease about the stock above $200 as an auto company. While Albertine sees opportunity for Tesla in energy storage he maintained a hold rating for the stock until further details are revealed (likely in an announcement this week).

Tesla has largely pitched “gigafactory” in relation to its third generation vehicle — the Model E — but Albertine, like Jonas, feels that that “the opportunity to supply the energy storage market could be much more significant, making sales from the Model E (and frankly any vehicle) pale in comparison.”


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