6 Reasons Why Morgan Stanley Says Tesla's Next Gigafactory Location Is Texas

Tesla Inc TSLA shares have recovered from their coronavirus meltdown, courtesy of a  strong quarterly report. On the earnings call, CEO Elon Musk suggested the company's next Gigafactory could be announced as soon as next month and that it would be in the U.S.

An analyst at Morgan Stanley strongly believes Texas is the most likely location. 

The Tesla Analyst

Adam Jonas has an Equal Weight rating on Tesla with a $680 price target. 

The Tesla Thesis

Texas confers the following six advantages that could clinch the decision in its favor, Jonas said in a Monday note. (See his track record here.)

The analyst sees inherent disadvantages with respect to location and logistics in having all of a company's North American production on the West Coast of the U.S.

Tesla's vehicle factory in the U.S. is in Fremont, California; no other OEMs have vehicle assembly in the Golden State, he said.

Secondly, Texas ranks No. 4 in the U.S. among auto manufacturing jobs, Jonas said, citing Labor Department statistics.

Thirdly, Jonas is of the view that Tesla might prefer to operate in states where labor union representation is less prevalent. Texas, being a right-to-work state with affordable labor costs, fits the bill, the analyst said. 

The cost of doing business is significantly lower than Tesla's current production in California, he said. 

Fourth, Tesla, which pitches itself as an integrated renewable energy generation, storage and transportation company, would prefer a state with an abundance of predictable renewable solar energy to power its manufacturing operations, Jonas said. 

SpaceX/Starship operations are in Boca Chica, Texas. As SpaceX continues to make headway in developing its Starship, the analyst said it is only prudent for Musk to spend more of his time in the Lone Star State.

"Synergies in management time and, over time, possibly increased cooperation between Tesla and SpaceX make Texas an appealing option for the next US Giga." 

Last, Morgan Stanley said the U.S. lawmakers and the public might see a multibillion-dollar investment from a renewable energy and transportation company in the heart of the U.S. oil and gas industry as "symbolic and, in many ways, well timed."

TSLA Price Action

At last check Tuesday, Tesla shares were rising 2.45% to $779.88.

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Photo courtesy of Tesla.