Why Tesla's Valuation Means The Story Is No Longer About The Model 3

As Tesla Inc TSLA continues to surge, Morgan Stanley analyst Adam Jones reexamined his valuation for the automaker company. Jones ended up raising his bear case to $175 (from $50) and reiterated his $511 price target for his bull case.

Notable Takeaways

Jones does not believe the launch of the Tesla Model 3 will be a major catalyst for Tesla's valuation. “In our view, there’s only one market big enough to propel the stock’s value to the levels of Elon Musk’s aspirations: that of miles, data and content,” Jones said. “When does Tesla make the leap to mobility? It’s been more than a year since Mr. Musk first alluded to Tesla Network and we’ve heard very little on the topic since that time. In our view, this quiet period probably cannot last much longer.”

Model 3 demand could help make Tesla more profitable in the near term. Jones believes this could lead to further reinvestment within Tesla, causing the stock to perform better.

Jones sees Tesla being one of the larger players who could gain 5–10 percent of the market share in the self-driving car industry. Alphabet Inc GOOG GOOGL's Waymo, a self-driving car project, has already been valued as high as $70 billion dollars. This shows how lucrative of an opportunity this industry could be for Tesla.

Nothing Comes Without Risks

1. The autonomous vehicle industry could be very fragmented, creating lower margins for Tesla.
2. Jones is not sure whether Tesla has the physical infrastructure to service all the vehicles it believes it will sell by 2020.
3. SpaceX has a very busy launch schedule at the end of 2017 and in 2018.
4. Competition from companies like Waymo could sway investors away from Tesla.

In addition to Morgan Stanley's $305 price target, the firm has an equal-weight rating on the company.