“Profound shift”: Tesla shares surge on stunning “internet-of-cars” valuation
Shares in electric vehicle and energy storage giant Tesla surged again this week after analysts at Morgan Stanley lifted their price target by a stunning 50 per cent, after including the value of the company’s software opportunity for the first time.
The Morgan Stanley team, led by the highly respected Adam Jonas, lifted its price target from $US360 a share to $US540 a share (or a total of $A720 billion), and slapped an “overweight” recommendation on the stock for the first time in three years. Its bull case target is $US1068 a share, or a market value of $A1.4 trillion.
“Tesla is on the verge of a profound model shift,” the Morgan Stanley analysts write, from a company that is just selling cars, along with battery storage and solar, to generating high margin software and services revenue.
It’s what Morgan Stanley calls the “internet-of-cars” opportunity, and underlines the extent to which Tesla has redefined the global auto industry, and just how far ahead of the rest of the pack it is.
Morgan Stanley already believes that on the simple metric of selling electric cars, Tesla is nearly a decade ahead of most of its main car making rivals, such as General Motors, which it says won’t catch up to Tesla’s level of EV sales until close to 2030.
But it is on the value-add packages of software and subscriptions services where there is not just daylight, but a generation gap between Tesla and those chasing in the pack behind.
Morgan Stanley cites the potential of significant revenues from these basket of services, which include Full Self Driving (FSD), infotainment, performance upgrades, and other packages such as supercharging, maintenance packages and games. On top of that are the insurance and ride sharing opportunities which are valued separately.
FSD is the big ticket item right now. Tesla charges $US10,000 for FSD as an upfront payment, which Morgan Stanley estimates is the equivalent of an $US83 a month fee on a 10-year basis or a $US56 a month fee on a 15-month use-of-life case. Tesla has talked of introducing FSD as a monthly subscription, once the technology fully refined, but has not revealed the price.
Morgan Stanley suspect that revenues from FSD were around $US500 million in the last year, and about the same from it other packages, including self charging.
But there are other features that Tesla can “turn on” and lock in revenue at margins of up to 100 per cent, effectively turning Tesla drivers into company subscribers.
These include charging $US2,000 for a software update that shaves time off the acceleration from 0 to 100kmh, or as this writer found, a $A500 to offer heated seats for passengers in the rear seat. (Call me cheap, but I let them suffer with cold bottoms).
“To only value Tesla on car sales alone ignores the multiple businesses embedded within the company, and ignores the long term value creation arising from monetizing Tesla’s core strengths, driven by best in class software and ancillary services,” the analysts write.
“The internet-of-cars (IOC) opportunity is real and, in our opinion, is a prerequisite to unlock further upside to the stock.”