Morgan Stanley analyst Adam Jonas maintained an Overweight rating on Tesla shares and a $1,200 price target. Tesla reported 4Q unit deliveries roughly 15% ahead of consensus, annualizing to over 1.2mm units before contribution from Giga Texas and Giga Berlin, which the firm ultimately expects to be far larger factories than Fremont and Giga Shanghai.
3 key thoughts presented by Morgan Stanley:
1. It is not just the unit beat, but the favorable economics from reducing the proportion of vehicles coming out of Fremont. While not disclosed by Tesla, the firm estimates there to be as high as a 2,000bp gross margin differential between Fremont (approx 20%) and Shanghai (approx 40%). The opening of the Berlin and Austin factories offers an opportunity to achieve even higher gross margins, which Morgan Stanley expects Tesla to eventually re-invest into product, service/network expansion and price.
2. Beyond unit volume the firm expects that the ultimate direction of Tesla shares in FY22 will be driven by the ramp and economics of Giga Berlin and Giga Texas, commercialization of the 4680 structural pack, commercialization of more audacious applications of Giga Press and further geographic expansion (ie. India, Australia, Vietnam, Russia and further expansion in Europe and NAFTA). In addition, Morgan Stanley believes investors will soon be made aware of more new product intros eventually rounding out a portfolio that expands from the introduction of a compact, Cybertruck, SUV, rideshare, final mile/commercial, and other vehicle categories over the coming years.
3. Morgan Stanley thinks 2022 is the year where Tesla can begin to ‘perform’ like a Tera-cap. The Tesla we see today, even with the 308k delivered unit in Q4, largely reflects the 'pre-COVID' Tesla that was operating on more of a shoe-string budget and had yet to deliver consistent profit and cash flow. The firm thinks that in 2022, investors will witness the emergence of a different Tesla organism from the "chrysalis of self-inflicted struggle."
At this point, Morgan Stanley describes 2m units produced as a stretch target for 2022 but one that looks far more realistic following Q4 deliveries. The firm believes that fully ramped, the addition of Giga Berlin and Giga Texas will take the Tesla global installed capacity to closer to 3m units, rather than 2.5m units. Consider that today the company is annualizing at 1.23mm units. Morgan Stanley believes both factories in Berlin and Austin are designed to have significantly higher capacity than either Fremont or Giga Shanghai. However, given continued supply chain issues, the firm would apply a reasonable degree of caution to the pace of ramp for both new plants this year. Regardless, it appears that demand is not going to be a problem for Tesla.
© 2022, Eva Fox | Tesmanian. All rights reserved.
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