Tesla Inc. TSLA had a challenging last week as bulls turned bearish after Elon Musk failed to soothe investor worries during the earnings call. However, a top Wall Street analyst has stood by the company’s stock price target, shifting the focus to the potential value of Tesla’s non-automotive divisions.
What Happened: Tesla disclosed weaker-than-expected Q2 earnings and the lowest profit margins in half a decade, amid a worldwide EV price war and declining consumer demand. The company also postponed the launch of its highly anticipated robotaxi until October, or possibly later, due to last-minute design modifications.
Despite these hurdles, Morgan Stanley analyst Adam Jonas suggests that investors are excessively focused on the company’s automotive challenges, while underestimating the potential value of Tesla’s energy, AI, and robotics divisions. He contends that these sectors could offer greater shareholder value in the long run.
“While negative developments in the global EV market could impact the stock in the near-term, investors should not overlook Tesla's other plays, including recurring revenue from the Tesla fleet and areas like Energy Storage and Optimus,” Jonas said in a note.
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Jonas held his $310 price target for Tesla, underscoring that the company’s AI infrastructure assets are thriving, with shifts in the business mix being overlooked. He also spotlighted the company’s energy storage sector, which witnessed a record deployment of approximately 9.4 gigawatt hours of energy-storage products in the three months ending in June.
Jonas argues that the value and potential of these divisions now significantly surpass that of Tesla’s traditional carmaking unit. “Our thesis views Tesla as both an auto and an energy/AI/robotics company, with the core auto business valuation at $59/share, just ~19% of our $310 target.”
Tesla’s Future Beyond Cars
CEO Musk has also stressed the profit potential of AI technologies and foresees a surge in capital spending to around $10 billion this year. Despite a 43% slump in earnings per share from last year, Tesla’s revenues managed to climb 3% to $25.5 billion, buoyed by stronger-than-expected delivery numbers.
Nonetheless, this did not result in higher profit margins, with Tesla’s gross margin of 14.6% being the lowest in at least five years. Musk has reiterated that full-year deliveries would be “meaningfully lower” than last year’s record tally of around 1.81 million but remains optimistic about the company’s future beyond carmaking.
What Other Analysts Are Saying?
The Future Fund LLC Managing Partner Gary Black criticized Tesla for its second-quarter earnings, citing a lack of analytical rigor and a clear strategy. He highlighted the absence of analytical support for the company's market cap projections and called for a clearer strategy on margin stabilization, marketing, and the rollout of Full Self-Driving features.
In his latest post, Black, who has significantly reduced his Tesla stake, discussed what would prompt him to increase his position. He outlined three key points: First, Tesla needs to stabilize and potentially boost auto gross margins by demonstrating a clear path to achieving this goal. Second, evidence of a return to 25%+ volume growth, driven by the launch of sub-$30K EVs, would expand the company's market. Finally, data showing that full self-driving technology can improve from 95%-96% to 99.99% efficacy could justify raising Tesla's price target to $270.
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Stanphyl Capital's Mark Spiegel, a Tesla bear, noted that despite 55% of Tesla's operating income coming from emission credit sales, the overall operating margin was only 6.3%. This is among the worst in the industry, he said. "This is bubble-fraud a car company that should sell at 4x earnings," he added.
However, just like Jonas, Jim Cramer defended the electric vehicle maker and its CEO Elon Musk. While Tesla missed the earnings estimates, Musk told a great story of self-driving technology, energy production, and humanoid robots, Cramer said. If not for the rotation out of big techs, Tesla would have been up in Wednesday's session, he said.
Price Action: Tesla closed Friday's session down 0.20% at $219.80, according to Benzinga Pro data, and has declined 11.52% year-to-date. However, during Monday’s premarket session, Tesla shares gained 0.80%, according to data from Benzinga Pro.
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