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Despite the global challenges in the automotive industry, Tesla (NASDAQ: TSLA) has been doing quite well over this year and has reported its ninth consecutive profitable quarter. This has led many investors to look at the manufacturer's stock, and investment firms continue to raise their PTs on TSLA. Morgan Stanley now raises Tesla's price target to $1,200 from $900 as the manufacturer has proven to be able to continually ramp up production.

The next 12 months can demonstrate Tesla's manufacturing leadership, a step-change in costs/complexity and higher growth in the vehicle user base. Morgan Stanley's $1,200 price target implies roughly ½ the company’s growth target, a ‘constrained’ China and virtually no autonomy. The firm provided their key narrative:

• The Tesla you see today is the product of pre-COVID, sub $100 billion Tesla.
• The Tesla you'll likely see over the next 12 to 18 months would demonstrate the capabilities of the Trillion $ Tesla... emphasizing step-changes in manufacturing, cost reduction... expansion in capacity, model lineup and services offerings.

Morgan Stanley points out that Tesla's 3Q results were significant for 2 main reasons:

1. Extraordinary top line growth despite industry-wide supply shortages.
2. Industry leading profitability.

Prior to 3Q, Morgan Stanley's forecast of unit volume from 2021 to 2030 was 23%, lagging the overall EV market growth (26% on their forecast). The following 3Q results, now assume Tesla's unit volume CAGR from 2021 to 2030 is 28% slightly above their forecast of overall EV market growth.

What's changed with Morgan Stanley's numbers and Price Target?
Unit Volume. By 2030, the firm increases its unit forecast from 5.8 million to 8.1 million. This is driven by lower ASPs and significant global plant expansion, beyond Austin and Berlin, which they expect over the coming decade, with India likely next on the agenda.

Auto Gross Margin. Morgan Stanley believes that the company will invest cost savings and efficiencies into price and product capability as a lever to stimulate further top line growth. The firm expects total gross margins for the auto business to contract from ~30% today to 27% by 2030.

EBITDA & Margin. Investors should consider that their revised price target is based on an exit Auto EBITDA margin of 21% which is lower than what the company achieved in 3Q-21. By 2030, the firm expects the company to generate ~$79 billion EBITDA from the Auto business and ~$100 billion EBITDA for the total business.

Revenue. Morgan Stanley forecasts that total company revenue will grow from $51 billion in 2021 to $436 billion by 2030.

Total Adj EPS. The firm expects the company’s Adj Dil EPS to rise from $6 in 2021 to $43 in 2030.

By 2030 Morgan Stanley now expects Tesla's global car park to grow to 38 million, from 2.2 million at the end of 2021. This represents a 37% CAGR in the car park or ‘installed base.’

Risk/Reward. At $1,200 PT, the firm sees ~33% upside from the current share price. Their New Bull Case valuation moves to $1,600 (from $1,272), which represents 78% upside. Morgan Stanley's Bear Case valuation moves to $500 (from $450).



Morgan Stanley wrote:

"Tesla is the leader in EV manufacturing, batteries and autonomy. Embedded within its company is a fast growing, high margin software business that has the potential for highly recurring revenues from its connected car software and services business (Full-Self Driving, charging, maintenance, upgrades, content, etc.). Tesla also has a suite of enabling technologies and other businesses (energy, insurance, potential for powertrain and battery supply) that would allow the company to be an auto and energy champion in the long-run, in our view."

© 2021, Eva Fox | Tesmanian. All rights reserved.

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This article is for informational purposes only. You should not construe any such information or other material as an investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Eva Fox, Tesmanian, or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Eva Fox holds zero shares of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.