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by Claribelle Deveza November 14, 2019

2 Comments

Tesla (NASDAQ:TSLA) might have found some support in Morgan Stanely, thanks to its work with Gigafactory 3 in Shanghai, China. Analysts at the multinational investment bank believe a rise in TSLA shares may be coming, as well as 30 percent gross margins for its China operations.

Morgan Stanely analyst Adam Jonas and his colleagues shared their predictions about Tesla in a report titled, "Shanghai Giga = Porsche-Like Margins?" The title suggested that Jonas and his fellow analysts believe TSLA could reach Porsche's industry-leading margin levels because of GF3. 

Based on the report, Jonas thinks Tesla's gross margins from the Shanghai factory will be in the low-to-mid 30 percent range. He argued that it would be cheaper to manufacture vehicles in China. For instance, Chinese labor alone costs one-tenth of the wages in California.

"Investors may not realize how expensive it is to make cars in Silicon Valley until Tesla ramps the Shanghai Factory," wrote Jonas.

Tesla-Gigafactory-3-China

Credit: Ray4Tesla/Twitter

Jonas also pointed out that luxury brands are quite popular and China, suggesting that there would be demand for Teslas in the Chinese market, reported Bloomberg. Jonas may have hit the bullseye with that statement. 

In America, a lot of people still consider Teslas as niche vehicles. Well, in China, Teslas fit just the right niches. Luxury cars continue to be popular in the Asian country. A Herald Journalism report revealed luxury carmakers and second-tier brands were gaining traction in the Chinese market. The report stated 2.82 million premium vehicles were sold in 2018 with a year-on-year growth rate of 8 percent. That's a market that is ripe for the taking for the made-in-China Tesla Model 3. 

However, the rate of growth for premium vehicles has slowed down since 2017. The opposite seems to be happening in China's general EV market. According to the Wall Street Journal, 60 percent of global EV sales came from China.

Based on the information discussed above, China loves luxury cars and EVs. Tesla fits into that niche perfectly. Morgan Stanely certainly seems confident that the Chinese market will be profitable for Tesla. The investment bank's analysts set a bull case price target of $440 for TSLA shares. Morgan Stanely PT is higher than Jefferies, which recently set a $400 price target. 

Featured Image Credit: Ray4Tesla/Twitter


2 Responses

Ma. Claribelle Deveza
Ma. Claribelle Deveza

November 17, 2019

Hello TeslaBoy,

Morgan Stanley has predictions for the bear case and bull case. Its bear case is $10 per share. The article above addresses Morgan Stanley’s bull case.
I’ve edited the article to address this.

Sources:
Bear Case: https://www.marketwatch.com/story/tesla-stocks-bear-case-is-10-morgan-stanley-says-2019-05-21
Bull Case: https://www.afr.com/companies/transport/tesla-may-get-porsche-like-margins-in-china-morgan-stanley-says-20191114-p53ag1

Teslaboy
Teslaboy

November 17, 2019

So he changed price target from $10 to $400 within 6 months ?

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