FYI: Tesla’s automotive business requires stabilization, yet overlooked strengths could drive future growth.
Tesla (NASDAQ: TSLA) must first stabilize the negative earnings revisions within its automotive division, according to Morgan Stanley analyst Adam Jonas. Despite these challenges, Jonas asserts that other burgeoning areas of Tesla’s business are often underestimated.
Jonas reaffirmed Morgan Stanley’s $310 price target and maintained its ‘Overweight’ rating in a recent investor note, following the company’s Q2 earnings call earlier this week.
Mixed Reactions Post-Earnings
Tesla shares saw a significant drop after the earnings report, primarily due to the automaker missing Wall Street’s EPS expectations. However, the company exceeded revenue forecasts. Analysts stress the necessity for Tesla’s auto sector to stabilize, especially as it grapples with margins and aims to boost vehicle deliveries in the coming years.
“We believe Tesla has significant attributes to be valued as an AI beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first. We do not believe Tesla will get credit as an AI company as long as core auto earnings are being revised down. This process may take a few more quarters to see through,” Jonas stated.
Slower Growth on the Horizon
Earlier this year, Tesla indicated a projected “notably lower growth rate” owing to its development of the next-gen platform, including initiatives in Robotaxi and Full Self-Driving (FSD). The production of these next-gen models, including more affordable EVs, is anticipated to start in the first half of 2025.
Short-term Pain, Long-term Gain?
Jonas suggests cautious optimism for Tesla investors, attributing potential near-term negative impacts to current global EV market trends. "Our thesis on Tesla is that it is both an auto stock and an energy, AI/robotics company. In fact, our valuation of the core auto business ($59/share) represents just 19% of our $310 price target. Negative developments in the global EV market very much matter to Tesla and should reasonably have a negative near-term impact on the price of the stock,” he remarked.
Nonetheless, long-term investors, often referred to as “diamond hands” shareholders, appear less concerned about these short-term fluctuations.
Diverse Business Strengths
Jonas emphasizes that Tesla’s diversified business model holds substantial promise for future growth. “We believe investors should not ignore Tesla’s continuous developments in various sectors, many of which are auto-related, such as the recurring revenue opportunity from the Tesla fleet—embedded in our Tesla Network Services valuation—and other areas that we do not include within our $310 price target but that the market may include, like Energy Storage and Optimus,” Jonas elaborated.
Current Stock Performance
As of today, Tesla’s stock is trading at approximately $222. Investors and analysts alike will be closely monitoring the company’s progress in stabilizing its automotive business while also leveraging its strengths in AI, robotics, and energy solutions.
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William Kouch, Editor of Automotive.fyi
