Morgan Stanley raised its Tesla (NASDAQ: TSLA) bull case to US$500 because of Elon Musk’s Cybertruck and Tesla’s Gigafactory 3 production volume. Despite its new optimistic outlook on TSLA shares, Morgan Stanley maintains a bear case of US$10 for the electric car maker and still believes Tesla stock is overvalued in general.
Morgan Stanley’s US$500 price target for TSLA shares only applies if Cybertruck sales are strong and Gigafactory 3 in China performs well. MS analyst Adam Jonas predicted that 100,000 Cybertrucks will actually be sold by 2024 for the average price of US$50,000, reported Bloomberg. Currently, there are over 250,000 Cybertruck reservations, so Jonas’ estimate is conservative.
250k— Elon Musk (@elonmusk) November 27, 2019
However, if Tesla only needs to sell 100k units of its all-electric pickup truck, Jonas’ US$500 TSLA stock projection could happen. The CYBRTRK has been getting a lot of attention since its unveiling. Public sentiment for the electric truck has turned from polarized to mostly positive. More people are starting to like the Cybertruck’s unique design and bold existence.
In China, TSLA’s share price depends on Gigafactory 3’s performance. Jonas thinks Tesla’s Shanghai facility could produce 450,000 units per year on its own by either 2024 or 2025. To reach Jona's production volume, GF3 will need to have an output of around 8,500 MIC Model 3 units a week. MS believes 200,000 units of Tesla's sedan will be sold in incremental volume with a profit of US$40,000 per car sold.
Giga3’s production volume seems to be the main concern for the Morgan Stanley analyst. Demand for the Made-In-China Model 3 is predicted to be quite high, and it may increase since the Chinese government just granted incentives for Tesla’s sedan. Gigafactory 3 will have to burn the midnight oil to meet orders. As such, Tesla’s success in China hinges on whether the company can deliver those orders.
⚠️⚠️Breaking News⚠️⚠️— Vincent (@vincent13031925) December 6, 2019
Tesla China 🇨🇳 qualified for government incentives presumably for its locally-made Model 3 sedan. These incentives gives the Made-in-China Tesla Model 3 a competitive edge against other EVs in the local market. $TSLA @elonmusk https://t.co/i8xSYjtw6n
Regardless of Jonas’ optimistic predictions for TSLA shares and Tesla’s near future, Morgan Stanley still has a bear case of US$10 for Elon Musk’s company. Overall, MS maintains a US$250 price target for TSLA shares in the long term. Morgan Stanley believes Tesla is moving away from its status as a developing tech company with Gigafactory 4, and will be establishing itself as a “traditional automaker,” after its Berlin facility is complete, reported CNBC. It seems that as a regular automaker, Morgan Stanley expects that Tesla shares won't be worth more than US$250.
“We are cautious on Tesla’s prospects in China, given geopolitical/CFIUS concerns. We believe that the Model Y will likely cannibalize a significant amount of demand for the Model 3, and see Berlin Giga as the first step for Tesla to ultimately be seen by investors as an auto company rather than a high growth tech firm, with valuation reflecting that at some point,” said Jonas.
Featured Image Credit: Tesla START
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