Tesla is now Morgan Stanley's "top pick" in the U.S. auto space, replacing Ford Motor. It sees 40% upside to TSLA stock and believes the EV giant is managing risk around its automobile business and "cornering the market" on zero emission vehicle credits. TSLA stock angled higher Monday.
Adam Jonas, Morgan Stanley's high-profile autos analyst and a Tesla bull, wrote Monday that Tesla leads the U.S. auto stocks. Behind Tesla, Ford is ranked second and Ferrari is third. EV startup Rivian is ranked 11th on Morgan Stanley's list.
Jonas stressed that Tesla is shifting resources away from its auto segment as booming EV demand forecasts have dwindled.
"While Tesla is still making cars, we note the company is aggressively redeploying incremental resources, technology, people and capital away from the auto side of the house," Jonas wrote Monday. "We found it notable that Ford management spent far more time on its 2Q conference call discussing EVs than Tesla did."
The analyst added that Tesla saw zero emission vehicle (ZEV) credit revenue equating to around $2,000 per unit in the second quarter, more than two times its recent run rate. Jonas posits that as more legacy automakers, including Ford, dial back EV plans, Tesla "may achieve an even more dominant position in the market for highly lucrative ZEV credits going forward."
Tesla China And Robotaxi
However, Jonas also sees Tesla's growth story in China diminishing. Tesla China accounted for 18.2% of total Tesla revenues in Q2. Morgan Stanley projects that by 2030 Tesla China revenue will be around 10% of Tesla auto unit volume and just 6%-7% of total group revenue.
"We expect the long-term trend for Tesla's China exposure to continue to fall systematically," Jonas said.
TSLA shares jumped 5.6% to 232.10 in Monday's market action.
China EV startup Nio said last week it is not entering the robotaxi market, with Chief Executive William Li voicing skepticism whether it will be a "sustainable business ," according to CnEVPost.
Near-term expectations around Tesla's Full Self-Driving, called FSD, and robotaxi "may be too high," according to Jonas.
The analyst added that if Tesla were to "solve the robotaxi problem" it is "highly unlikely" China's government would allow the technology to be deployed there.
Tesla Stock Performance
TSLA stock plunged more than 8% last week to 219.80, weighed down by a 12.3% decline Wednesday after second-quarter earnings sank more than 40%, worse than expected. Technically, Tesla stock has a 271 handle buy point on a consolidation going back several months to a year, according to MarketSurge chart analysis. However, it is no longer tight action.
Tesla stock also received four downgrades last week.
Going into the second-quarter earnings report, investor sentiment had been upbeat, with TSLA surging more than 25% in July after the EV maker announced a surprise second-quarter beat in vehicle deliveries earlier this month.
Shareholders also recently voted in favor of giving Musk his 2018 $56 billion pay package and reincorporating the company in Texas, moving it from Delaware.
Tesla stock ranks third in the 35-member IBD Auto Manufacturers industry group. The stock has a 67 Composite Rating out of a best-possible 99. Shares have a 71 Relative Strength Rating and a 59 EPS Rating.
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