Tesla (NASDAQ: TSLA) received a boosted price target from Morgan Stanley’s Adam Jonas this morning from $272 to $333. The new, raised outlook is based on Tesla’s Robotaxi fleet, which Jonas believes shows extreme upside potential for the automaker through the next ten years.
Jonas holds a 51% success rate and an average return of 8.8%, according to TipRanks.com.
In a note to investors, Jonas describes a new, more positive outlook for Tesla’s planned ridesharing service, which he believes shows tremendous potential compared to Morgan Stanley’s previous forecasts.
“We believe that the company is in a better position to deploy its ride-hail/transportation as a service business faster and more profitably than our previous forecast,” Jonas writes to investors in a note. “Reductions in the price of the car and battery, improvements in the EV charging infrastructure, insurance costs, residual value retention, and other factors have also increased the economic inputs of our Mobility model for Tesla.”
The announcement of Jonas’ price target boost comes just days after Tesla CEO Elon Musk announced that a Beta of the company’s Full Self-Driving suite would be released “in a few weeks.” It turns out that a very limited number of people will receive the capability on Tuesday, a day ahead of the company’s Q3 Earnings Call.
“Limited FSD beta releasing on Tuesday next week, as promised. This will, at first, be limited to a small number of people who are expert & careful drivers,” Musk said in a Tweet.
If the self-driving Beta program yields positive results, Tesla could launch its Robotaxi program before the end of the year, matching Musk’s expectations from early 2020, when he stated it would be ready by 2021. “I think we could see robotaxis in operation with network fleet next year. Not in all markets, but in some,” he said.
With Tesla’s record quarter in deliveries and production, Morgan Stanley also adjusted its forecast of how many cars will use the autonomous ride-hailing platform.
“We forecast a launch of 1,000 cars (from the existing fleet) in Tesla Mobility by 2021, rising to 500k cars by 2030, which would account for 2.7% of our Tesla global fleet estimate (18.6mm units) by that year. Our previous assumption for the Tesla Mobility fleet was 240k units by 2030,” Jonas wrote. “We assume $45,000 per cost car (vs. $60k previously) and a 7-year useful life, and other savings, driving our exit OP margin of Tesla mobility to 14.7% (10.4% previously). We use a 10% WACC (11% previously) and a 4% terminal growth rate (2% previously) implying an exit PE multiple of 17.3x (11.3x previously). Taken together, our valuation of Tesla Mobility rises to $42bn ($41/share) vs. $7.3bn ($7/share) previously.”
With increased production rates in the U.S., along with a new facility being built in Texas, Tesla will have more than enough opportunities to bring a new wave of ride-sharing to the United States. Eventually, the service will make an international debut, but this depends on regulatory permissions that vary in each market.
Jonas’ $333 price target is met with a $716 bull case price target, and a $108 bear case.
At the time of writing, TSLA shares were trading at $452.45, up about .8% for the session.
Disclaimer: Joey Klender is a TSLA Shareholder.
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