Morgan Stanley's Adam Jonas Raises 'Bull Case' Tesla Price Target To $526

Tesla Inc's TSLA Model 3 announcement is shaping up to be one of the biggest catalysts in the company’s history.

After updating its model to include an increased Model 3 unit forecast, Morgan Stanley increased its price target on Tesla from $305 to $317, still below current levels, but upped its "bull case" target from $511 to $526.

“We believe a significant degree of Model 3 success may be discounted in Tesla’s share price,” said analyst Adam Jonas.

Morgan Stanley now forecasts 1,500 Model 3 Units in Q3, and raised the full year unit estimate from 96,219 to 106,552. The Model 3’s average transaction price was reduced to $50,000 from $60,000, which may affect revenues in the short term but could arguably be positive for Model 3 demand in the long term, Jonas said.

While $2 billion CAPEX spending expected in the second half is "eye-watering" according to analysts, investments in Model 3 equipment, Gigafactory construction and most notably the expansion of Tesla’s charging and service network is critical to sustaining the company’s competitive advantage for the long-term.

“Although other auto companies have launched and will continue to launch electric vehicles, we are not aware of any other auto company that is building out the necessary after-sales infrastructure to support a significant volume of electric vehicles,” said Jonas. “EV infrastructure will be crucial to enable an ownership and operating experience commensurate with the product.”

Shares of Tesla were up about 2 percent to $363.82.

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