The investment bank upped its price target to US$810 in a note released overnight, mostly from the assumed impact of higher sales volumes.
With the new Tesla Model Plaid launching soon, Elon Musk’s electric vehicle manufacturer should sell 792,000 cars in 2021, analysts at the bank predicted, upped from a previous estimate of 778,000 after the company last week confirmed it had almost hit last year’s delivery target of 0.5mln cars.
With new gigafactories coming on stream this year near Berlin, Germany and Austin, Texas, and 10 expected to be up and running by the end of the decade, Morgan Stanley see significantly larger sales increases in the coming years, with its 2023 forecast rising to 1.7mln units from 1.35mln and its 2030 forecast yanked sharply up to 5.2mln from the prior 3.8mln.
This has driven the bank’s valuation of the core auto business to US$332 per share from US$254 per share previously.
“We have been looking increasingly closer at a range of start-up players in the EV space and have increased conviction that Tesla’s technological position and business model is the right one for this once-in-a-generation transition to sustainable transport,” analysts Adam Jonas and Billy Kovanis said in the note.
Acknowledging that While the range of outcomes is admittedly high, the market has ‘chosen’ to ascribe a higher level of discounted value to Tesla than that typically discounted for its peers,” the analysts said.
Despite the 713% surge in the share price over the past 12 months, the pair said they “continue to believe that Tesla can outperform vs our sector in 2021”.
They added: “In our opinion, Tesla is still the best positioned company in EVs and AVs under our coverage due to its people, its technology, business model and access to capital.”
Tesla is cash rich, having raised a further US$5bn of equity in early December after already topping up its coffers earlier in the year with another US$7bn, giving Musk the chance to re-invest in growth and product in a number of ways, the analysts said.
“For example, we estimate $5bn adds well in excess of 1mln units of incremental capacity (two large wholly owned developed market plants) or, alternatively, enough to develop four or five entirely new product lines, or a host of other uses in combination.”
This ability to raise capital, combined with the investment bank’s expectations of industry leading battery production volume, also enhances and de-risks the analysts assumptions for Tesla’s battery supply business that makes EV packs and complete powertrains for other manufacturers from US$58 per share to $96 per share.
Not forgetting Tesla Energy, which encompasses solar energy and battery storage, Morgan Stanley’s forecast long-term compound annual growth rate has been upped to 18% from 13% previously, taking the valuation for this arm to US$44 per share from US$32.
This reflects higher expected growth in end markets and market share for Tesla as they leverage automotive-grade battery technology into stationary storage.
Tesla Energy is also preparing to step up its move into the UK energy market in 2021, having reportedly filed an application for a British electricity provider licence not long ago.
Morgan Stanley’s note follows not long after analysts at Goldman Sachs turned more bullish last month, based on predictions that the Model Y SUV will unlock the door to higher profit margins.
Tesla should also be able to deliver around 1mln vehicles by 2022 and 15mln by 2040, the ‘Vampire Squid’ reckons, with such bullishness resulting in an US$4.80 earnings per share estimate for 2021 that is more than 30% higher than the Wall Street average.
One of the next items on the financial agenda this year will be the company’s fourth-quarter numbers, which are due in late January and with higher sales already confirmed, should notch up a sixth consecutive period of profits.