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Morgan Stanley analyst Adam Jonas wrote a new note in which he once again drew the attention of investors to several points that confirm the broader global EV narrative and Tesla's (NASDAQ: TSLA) role as not just a car maker, but as sort of a chief contractor of rebuilding a sustainable transport and energy 'grid.'
1. Norway EV penetration hits 72% in August—a level firm did not forecast the U.S. to hit until 2040. This rate of EV penetration is nearly 20 years ahead of when Morgan Stanley expected the U.S. to reach the same level. Deliveries of Model Y started only in the last week of August and it became the #1 selling vehicle in the country with 1,115 units, according to local registration data. The firm thinks things get really get interesting once Tesla can actually start getting products out of Berlin instead of importing cars from Fremont and Shanghai. Studying the Norway example, investors can get a glimpse into the future on key issues such as ICE de-adoption, infrastructure, grid stability, recycling, etc.
2. New York signed legislation to ban the sales of ICE light vehicles by 2035. On September 8, legislation that effectively follows California's decision to ban ICE vehicles in 14 years was signed by Governor Hochul. According to the NADA, New York accounted for 6.1% of U.S. light vehicle sales in 2020 with $60B of dealership revenue. California accounted for 11.2% of units and $108B of dealer revenue. That's a combined $168B of >99% ICE-derived revenue in states that want to completely ban EV sales within basically one engineering cycle.
From a Tesla perspective, Morgan Stanley sees them as best positioned to benefit from these changes given their market position, vertical integration, access to capital and access to the highest volume of domestically-sourced battery supply. Below the surface, Tesla is currently one of the most profitable auto companies in the world.
3. Indian market: Exit Ford, Enter Tesla. Ford announced it is ending local manufacturing in the Indian market. While the Indian EV market is essentially nonexistent today, the firm's team forecasts this market to become a major force in the global EV market in the years to come. According to their calculations, the Indian EV CAGR to be 31% from 2025 through 2040 as EV penetration there rises from 5% to 85%.
Due to this, Morgan Stanley reiterates their 'Overweight' rating on Tesla and $900 price target. Jonas wrote:
"We believe investors underestimate Tesla's advantages in commercializing new innovations, at scale, across a vertically integrated platform. From the raw materials of the battery... to the data coming off of the car... and everything in between. Even in our own modeling, we may be underestimating the ambition and speed with which Tesla is industrializing the EV, its supporting infrastructure and its 'internet of cars' revenue model. The market has clearly decided to 'fund' these ambitions through its $700bn market cap and we believe Tesla's Board and senior management team will execute an array of strategic and commercial moves that are commensurate with this valuation."
The firm forecasts Tesla's combined CAPEX + R&D to reach 24B by FY26 and $26B by FY27 (vs $8.3B in FY21). This is a level equal to the CAPEX + R&D spent by Apple and greater than NASA's annual budget today.
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