Merrill Lynch: Tesla Semi Announcement Could Be A Reason To Buy Allison Transmission

The long-delayed unveiling of Tesla Inc TSLA’s semi-truck is finally here, and hype surrounding the Thursday event already catalyzed a 4-percent run in the stock.

Tesla Semi Truck unveil to be webcast live on Thursday at 8pm! This will blow your mind clear out of your skull and into an alternate dimension. Just need to find my portal gun ...

— Elon Musk (@elonmusk) November 12, 2017

But CEO Elon Musk’s enthusiasm hasn’t derailed the Allison Transmission Holdings Inc ALSN bull thesis. In fact, Merrill Lynch advises buying Allison, the firm's preferred truck name, on any Tesla-related weakness.

The Rating

Analyst Ross Gilardi maintains a Buy rating on Allison with a $52 price target.

The Thesis

Some on the Street anticipate a full Tesla Semi rollout in 2019, but delays in Model 3 production have led Merrill Lynch to expect a protracted timeline. This, compounded by an already delayed unveiling, is seen to diminish Tesla’s eventual trucking market share, Gilardi said. (See Gilardi's track record here.) 

“By now, most of the incumbent truck OEMs and suppliers have come out with their own strategies and product announcements for competing in the new world,” Gilardi said in a Tuesday note. “We think the hype on etrucks is likely to start to subside once the Tesla announcement is officially out of the way. From there, we think investor focus will return to the global truck cycle.”

Gilardi is bullish on Allison, considering the firm’s recent partnership on VW MAN’s eDelivery truck — as well as share repurchasing expectations.

Price Action

Allison closed down 2.5 percent Monday on Tesla’s semi-truck hype. At the time of publication, it was set to open at $42.27.

Related Links:

Deutsche Downshifts Allison Transmission Rating To Sell

Economics Of Autonomy: The Big 3, Trucking And Insurance

Photo courtesy of Tesla.