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You’re here (TSLA) – Get the report ultimately won the favor of Morgan Stanley’s equity research team.
Morgan Stanley analyst Adam Jones lifted Tesla’s overweighting for the first time in more than three years on Wednesday, predicting the electric carmaker to be on the verge of a ‘profound model shift’ in sales from cars to high-margin software and service revenue generation.
“Valuing Tesla only on car sales doesn’t take into account the multiple activities built into the business,” Jonas said in a research note to customers as he passed equities with equal weight and increased his goal of 50% price to $ 540 from $ 360, suggesting an additional 22% increase for the stock.
In his memo, Jonas wrote that Tesla is “on the verge of a profound model change,” from selling cars to generating recurring high-margin software and service revenue, and that its electric vehicle business is Tesla and CEO Elon Musk’s “entry ticket” to “Unlock Much Larger Potential Markets”.
To better assess Tesla’s future revenue potential, Jonas said his team are now including revenue from connected software / vehicle services in their earnings and valuation forecasts. With the total number of Tesla worldwide set to reach 2.1 million next year, “a deeper understanding of the revenue streams derived from each car is warranted now,” he writes.
Morgan Stanley’s Tesla U-turn follows Standard & Poor’s announcement on Tuesday that the electric carmaker will join the S&P 500 on December 21, a move anticipated for months as Tesla surprised Wall Street with profits and better than expected sales which drove its valuation to new heights.
Tesla will be one of the most valuable companies in the S&P 500 once it’s included.
It also follows the success of Musk’s other multi-billion dollar venture, SpaceX.
NASA and SpaceX successfully took off on Sunday evening of a spacecraft carrying astronauts from the United States and Japan to the International Space Station – marking the start of a major space mission that has been brewing for years.
To be sure, Tesla isn’t the only EV game in town, at least not anymore. Chinese electric car maker NIO (NIO) – Get the report posted better-than-expected results after the close on Tuesday, and said it planned to deliver 16,500 to 17,000 vehicles in the next quarter.
Tesla shares rose 2.42% to $ 452.30 on Wednesday. The stock ended the trading day Tuesday up more than 8% after being selected to join the S&P 500 index.
Tesla Daily: TSLA disappears in the day after the S&P 500 announcement
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