Morgan Stanley Raises Tesla's Price Target, But Remains Bearish

Tesla Inc TSLA got a price target hike on Wednesday, but the analyst remains bearish on the stock and says too much success is already priced in.

The Tesla Analyst: Morgan Stanley analyst Adam Jonas reiterated his Underperform rating for Tesla and raised his price target from $740 to $1,050.

The stock traded around $1,500 at time of publication.

The Tesla Thesis: Jonas said it has become obvious that Tesla will become one of the largest automakers in the world, rivaling the likes of Toyota Motor Corp TM or VOLKSWAGEN VWAPY over time. Jonas’ new target represents a forecast of 3 million vehicle deliveries per year for Tesla by 2030, up from his previous estimates of 2.3 million. Tesla has said it will deliver 500,000 vehicles in 2020, but it delivered just 179,050 in the first half of the year.

In addition to his new forecast of 3 million annual deliveries by 2030, Jonas’ new Tesla price target assumes Tesla will achieve double the margins and average sales prices of the rest of the auto industry. However, given Tesla's $277 market cap already far exceeds Toyota, Volkswagen and others, Jonas said the company would need to significantly exceed those targets for him to consider upgrading the stock.

“The current share price discounts roughly 5 million units, which implies as much as 10% of industry revenues and roughly 20 to 30% of industry profit,” he wrote in the note.

If Tesla exceeds these expectations, Jonas said his bull case price target is $2,500.

However, Jonas said Tesla faces three major risks to its 10-year outlook:

• Tesla may be overly dependent on China.
• The market may be underestimating the competition from legacy automakers and tech companies.
• Investors may have an overly optimistic timeline for autonomous opportunities.

If any of these risks prove to be real problems for Tesla, Morgan Stanley’s bear case price target for the stock is $375.

Benzinga’s Take: According to Jonas, Tesla shares are already valued as if the company will be delivering 5 million vehicles per year by 2030 and capturing at least 20% of the global auto industry’s profits. Tesla may need to do even better than that baseline if investors want to see significant upside to the stock after its huge recent run.

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