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Market Analysis
Tesla Stock Gains as Morgan Stanley Names New US Auto “Top Pick”
Morgan Stanley has named Tesla its new "top pick" in the U.S. auto sector, replacing Ford.
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Tesla Inc. (NASDAQ: TSLA) has been named the new “top pick” in the U.S. auto sector by Morgan Stanley, replacing Ford Motor Co. (NYSE: F). The announcement, made on July 29, 2024, by analyst Adam Jonas, sent Tesla’s stock surging amid a broader market rally.
Morgan Stanley’s Bullish Stance on Tesla
Morgan Stanley sees a 40% upside potential for Tesla stock, citing its effective risk management in its automobile business and its dominance in the zero-emission vehicle (ZEV) credit market. Tesla now ranks first on Morgan Stanley’s list, followed by Ford and Ferrari, with EV startup Rivian placed 11th.
Jonas noted that Tesla is strategically shifting resources from its auto segment as EV demand forecasts have decreased. The company’s ZEV credit revenue reached approximately $2,000 per unit in Q2, more than double its recent rate. As legacy automakers scale back their EV plans, Tesla is poised to dominate the lucrative ZEV credit market further.
While bullish on Tesla’s overall prospects, Morgan Stanley tempered expectations for certain aspects of the company’s business.
The firm projects Tesla’s China business to diminish in importance over time, with China revenue expected to account for only 10% of auto unit volume and 6-7% of total group revenue by 2030. Jonas also expressed skepticism about near-term expectations for Tesla’s Full Self-Driving (FSD) and robotaxi services, doubting that China would allow Tesla to deploy robotaxi technology even if developed.
Tesla Stock Gains Over 5% on the News
Following Morgan Stanley’s announcement, Tesla’s stock jumped 5.38% to $231.63 as of 10:08 AM EDT on July 29, 2024. This rally comes after an 8% drop the previous week due to disappointing Q2 earnings. Tesla’s market capitalization stands at $740.326 billion, with a trailing P/E ratio of 61.74 and earnings per share of $3.56.
Despite the recent surge, Tesla’s stock has underperformed the S&P 500 year-to-date, with a return of -6.74% compared to the index’s 14.90% gain.
However, Tesla’s long-term performance remains impressive, with a five-year return of 1,424.34%, significantly outpacing the S&P 500’s 81.12% return over the same period. The current stock price exceeds the analyst average price target of $187.90, reflecting renewed optimism in the electric vehicle maker’s prospects.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
