Several Fundamental Risks Overlooked As Tesla Approaches $2,000: Morgan Stanley

Tesla Inc TSLA shares have shown gravity-defying momentum as they reach new record highs in successive sessions. 

The Tesla Analyst: Morgan Stanley analyst Adam Jonas has an Underweight rating on Tesla with a $740 price target — and a bull case price target of $2,070.

The Tesla Thesis: Tesla shares have simultaneously shown higher price, higher volatility and higher average daily volume, Jonas said in a Tuesday note. (See his track record here.)

The market has disproportionately ascribed a very large share of the electric vehicle market and connected car ecosystem value chain to one single company, the analyst said.

This is despite companies such as Amazon.com, Inc. AMZN and Apple Inc. AAPL allocating capital to EV/autonomous vehicle transport in a vertically integrated/full-stack approach, he said. 

A closer look at the hiring, patents, acquisitions and strategies of some of the world's largest tech firms suggests that down the line, these companies will provide their operating system to many auto OEMs at virtually no cost, Jonas said.

The analyst is of the view that battery companies will provide high-quality, long-range and highly commoditized batteries to a wide range of EV manufacturers.

Tesla bulls are buying into the stock based on certain assumptions, including cordial relations between China and the U.S. on trade and intellectual property in the long-term; legacy auto OEMs failing to produce a competitive EV product; big tech platforms holding back from exploring compelling EV systems; and autonomous driving producing substantial service revenues, he said. 

As opposed to investor optimism, Morgan Stanley is concerned about Sino-U.S. relations, especially with respect to autos. Jonas also expects legacy players to plow $400 billion to $500 billion into EVs over the next five years.

"We expect big tech (established and clean sheet start-ups) to enter transport as a significant competitive force in EVs." 

The analyst is also cautious on the pace of adoption of full autonomy as a percentage of miles traveled over the next decade.

Tesla's valuaiton discounts over 5 million units of volume at a $50,000 ASP by 2030 with a relatively high combined EBITDA margin of about 20%, according to Morgan Stanley. 

TSLA Price Action: Tesla shares were trading 1.53% higher at $1,520.04 at the time of publication Tuesday. 

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Photo courtesy of Tesla.