Share Price Target For Tesla Raised By Morgan Stanley.
“EVs are no longer just a trend, they are a core strategy for to address both increasingly stringent regulator targets”
“Is the Model 3 good (or better) than the Model S for less than half the price?”
Tesla Motors consistently misses its ambitious targets, but investment bank Morgan Stanley is raising its expectations for the electric car maker because it is more confident about the upcoming Model 3, has raised its overall expectations for battery cars, while expectations high tech firms may be manufacturing competitors is receding.
Morgan Stanley, in a report, is also pleasantly surprised by the apparent endorsement by President Trump of home-grown electric cars in general and Tesla CEO Elon Musk in particular.
Morgan Stanley said it has increased its expectations for the Model 3, now saying the launch will take place later this year, and raised its sales forecast for Teslas overall to 183,000 in 2018 from the 114,000 previous target, although this is still 64 per cent lower than the company’s 500,000 ambition for 2018. Morgan Stanley’s overall volume target for 2020 is about two thirds less than Tesla’s 1 million. The investment bank doesn’t expect net profitability under U.S. GAAP rules before 2019 and free cash flow generation until very late 2018.
Tesla’s Model 3, base price close to $30,000 but probably averaging closer to $45,000, will go on sale by the end of 2017, and is set to be a big volume success for Tesla, and its first serious profit generator.
Morgan Stanley also said electric cars are now poised for success.
“EVs are no longer just a trend, they are a core strategy for (manufacturers) to address both increasingly stringent regulator targets,” the bank said.
Late last year Morgan Stanley raised its estimate for battery-only global electric car sales to between 10 and 15 per cent of the global market by 2025. That was more than 3 times higher than the average of current expectations then. Volkswagen expects this to hit 25 per cent. Currently global market share is an almost invisible less than 2%.
Another long-term threat has receded for the time being. That was the possibility that high technology firms like Google or Apple would mobilise their massive cash mountains to provide unbeatable competition in the manufacture of cars.
“A recent pull back in efforts by tech firms to make complete vehicles represents a sea change in competitive pressure that we felt represented a great concern to Tesla over the past 2 years,” Morgan Stanley analyst Adam Jonas said.
Google parent Alphabet Inc’s formation of Waymo to push autonomous car technology showed it had decided to concentrate less on the actual manufacturing of cars, Morgan Stanley said.
In the report, Morgan Stanley said its long-term target share price for Tesla was now $305, up from its current $250 proximity. It slid from nearly $268 last April to $182.5 in early December and has zoomed about 35 per cent since then.
Early in January, the Wall Street Journal’s Heard on the Street columnist Charley Grant pointed out that in 2016 Tesla delivered 76,000 cars, below its target of 80,000.
Grant said Tesla missed its quarterly forecast three times last year, and at the start of the year forecast it would deliver 80,000 to 90,000 cars.
“Tesla has promised to build 500,000 units by 2018 and 1 million by 2020. That will require hitting its highly ambitious timeline to roll out the new Model 3 mass-market sedan. Putting it mildly, Tesla hasn’t displayed the precise inventory management skills of its mass-market competitors,” Grant said.
“For now, investors have assigned a valuation to the stock which implies it can beat them at their game. Tesla certainly can talk the talk, but it looks less and less like it can walk the walk,” Grant said.
Morgan Stanley said 2017 is all about the upcoming Model 3.
Need Model 3 answers
“What’s the content? Where are the prototypes? When do we get to drive it? Will we want one? Is it good (or better) than the Model S for less than half the price? When does it launch? We may not get answers to all of these questions in 2017, but we’ll have to get some. And each one matters,” the report said.
Morgan Stanley said an unexpected, but hard to quantify bonus was the news Musk has an important line of communication to Donald Trump, through his role as a strategic advisor to the President.
President Trump has made much of his desire to increase manufacturing in the U.S., and so far, Tesla makes all its vehicles in America.