Tesla Inc TSLA is the top stock pick in the automotive sector for 2025, Morgan Stanley analysts led by Adam Jonas said in a note covering electric vehicles (EVs).
Tesla Top Stock Pick: Jonas’ note came ahead of Tesla hitting new all-time highs Wednesday.
Jonas reiterated an Overweight rating on Tesla and raised the price target from $310 to $400.
"Elon Musk's entry into the political sphere has expanded investor thinking around Tesla's fundamental outlook," Jonas said of Tesla CEO Elon Musk.
Tesla stock rallied since the 2024 presidential election. The big question is whether the move is temporary or the start of more to come.
"Will Tesla begin to play a greater role in the US renewable/autonomous industrial complex?" Jonas asks.
Jonas said client conversation see enthusiasm for AI, data centers, renewable energy and robotics. The conversations acknowledge that it's important for the U.S. to be a leader in these sectors, Jonas added.
"Based on our discussions, at least, Tesla is very frequently excluded from the potential paths of expression in a portfolio."
Tesla's total addressable market outside of its core automotive market is likely to expand. It might not be included in financial models for the stock, Jonas said.
Jonas said there could be risks on Tesla's autonomous vehicles and more items over time. But the close relationship between Musk and President-elect Donald Trump could prove key to unlocking value. Government and industrial partnerships could prove key for growth in EVs, autonomous vehicles and robotics, Jonas added.
"Elon Musk's emergence from a political ‘outsider' to having a voice in potential policies may, at some level, accelerate Tesla's journey beyond autos."
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Other Auto Picks: Outside of Tesla, Jonas and team see a "bumpy road" ahead for EVs and autonomous vehicles.
"The US election result has extended the ‘ICE is Nice' trade for a bit longer but keep on the lookout for hidden value in the EV ecosystem into the 2H," Jonas said.
Jonas upgraded General Motors GM from Underweight to Equal-Weight and raised the price target from $46 to $54.
The analyst said smaller EV companies could be the most at risk with the new administration. Trump promised to end EV credits.
"While Tesla may see share gain long term even with a less supportive EV regulatory backdrop, smaller scale EV start-ups Rivian and Lucid may see greater risks to production."
Jonas has an Equal-Weight rating on Rivian Automotive RIVN and an Underweight rating on Lucid Group LCID.
Rivian's valuation has the appropriate risk/reward for the balance between trying to achieve profitability and trying to get value out of its technology, the analyst added.
Price Action: Tesla stock closed Wednesday 5.93% higher at $424.77, hitting new all-time highs of $424.88 during the trading session. Tesla stock is up 71% year-to-date in 2024.
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