Morgan Stanley raised its Tesla (TSLA) target price to $1,360 and updated its “bull case scenario” to $2,636. Last month, the firm already raised its Tesla target price twice.
According to Morgan Stanley, “Tesla has been assembling assets/tech/people to put them in a position to potentially unveil a vertically integrated battery supply business that resets the industry cost curve.”
The analysis was conducted in collaboration with their Asian Technology team (led by Shawn Kim) and expresses growing confidence in Tesla’s ability to unleash even greater potential on Battery Day on September 22nd.
Tesla’s stock performance is likely to be driven by factors outside the auto business, Morgan Stanley writes. The firm explored two business models that have the potential to take Tesla shares higher from here:
- software/services revenue (ie, ARPU x Monthly Active User), and
- the supply of batteries and EV / powertrains to 3rd party OEMs (ether existing legacy makers or start-ups).
“With this report, we now feel we can justify transferring some value of the 3rd party battery business from the realm of the bull case into our base case.”
Analysts wrote that for the first time their base case includes profits from the battery business. Based on the data that has been collected, Morgan Stanley is now considering that Tesla may be doing with the 3rd party battery and EV powertrain supply business. They estimate that they will add $310/share to their previous target price of $1,050. Thus, the new target price is $1,360.
“Based on the body of evidence collected and research conducted by our tech colleagues, we now give Tesla credit for a 3rd party battery / EV powertrain supply business in our base case (previously in our bull case scenario) that is worth $310/share. Adding this to our previous price target (core auto assumptions unchanged) takes our revised price target to $1,360.”
Morgan Stanley’s bull case also includes the same value of the 3rd party battery business as their base case. So their bull case valuation rises to $2,636.