Morgan Stanley Says The Market Is Underappreciating Tesla's AV Business

Tesla Inc TSLA shares have bounced off of their May lows in recent weeks on optimism about second-quarter deliveries. The stock remains down 40 percent in the past six months, but one Wall Street analyst said Tuesday the market may be underappreciating sources of value within Tesla’s business.

The Analyst

Morgan Stanley analyst Adam Jonas reiterated his Equal-Weight rating and $230 price target.

The Thesis

Jonas said Tesla’s autonomous driving technology business is worth about $45 per Tesla share and is not fully appreciated by the market.

“While we acknowledge the higher degree of urgency needed for traditional industrial companies to form separate ‘tech-centric units’ to attract and retain talent vs. a company like TSLA, already widely thought of as a tech platform, we believe there are potential advantages to considering the value encapsulated within Tesla in the form of hardware, software, and access to substantial amounts of driving data/miles,” Jonas wrote in a note.

Other AV companies, including General Motors Company GM, Ford Motor Company F and Alphabet Inc GOOG GOOGL have separated out their AV businesses into standalone segments. Jonas said this strategy helps these companies attract and retain talent, highlight the focus on technology, open the door for technology partnerships and create more opportunities for high-value fundraising.

GM Cruise is an example of how GM created a separate legal entity specifically to focus on AV tech. Jonas values GM Cruise at roughly $9 billion, or about $6 per GM share.

As AV technology development becomes more central to these auto companies over time, Jonas said the ability to attract and retain talent and secure funding will be critical.

Price Action

Tesla's stock traded higher by 2.2 percent to $217.70 per share on Tuesday morning.

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Photo courtesy of Tesla.