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Morgan Stanley Makes The Case For Tesla

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In a note released Wednesday, Morgan Stanley analyst Adam Jonas provided a rebuttal to a some common concerns among Tesla Motors (NASDAQ: TSLA) naysayers.

Jonas wrote, "Where Tesla has been lectured ‘it can't be done'. So far, at least, they've been doing it… doing it pretty well, actually."

Jonas addressed the following six concerns of Tesla naysayers.

Aluminum: Jonas doesn't dispute the sentiment that aluminum is difficult to work with. That being said, he noted that Tesla is on track to be the "world's highest volume manufacturer of all aluminum passenger cars by 2016."

  1. Fires: Naysayers have harped on safety issues, namely fires. In rebuttal to this, Jonas noted that the Model S has only suffered three fire-related incidents. This works out to be approximately one fire for every 100 million miles traveled and compares to a US car park average of one fire for every 15 million miles traveled.
  2. Connected Cars: According to Jonas, Tesla is the only original equipment manufacturer with 100 percent of its fleet connected to the Internet. This feature allows the vehicles to receive firmware updates that can alter both electrical and physical attributes and thus has raised the question of hacking.
  3. Jonas implied that, as yet, there have been no instances of hacking by commenting, "Those meddling hackers need to keep trying."
  4. Distribution: In support of Tesla's distribution model, Jonas noted that the CEO of America's largest dealer group has publicly supported the company's captive strategy. Additionally, Jonas pointed out that the FTC is concerned the prohibition of Tesla stores in certain states "may be harmful to competition".
  5. 25 Percent Gross Margin: Jonas answered the sentiment that Tesla will never achieve a 25 percent margin by noting that not only did they do just that in the past two quarters, but also posted a 100 percent variable gross margin year-over-year for the first quarter.
  6. Gigafactory: Jonas acknowledges that Tesla faces the hard task of producing economies of scale for its battery production. To do this, he notes, the company is looking to vertically integrate its battery manufacturing at 10x scale and named Panasonic as a possible partner in this process.
  7. In a note released on April 16, Jonas addressed this issue in more detail. In that note Jonas wrote, "Tesla's plans for the vertical integration of batteries on an unprecedented scale require delicate coordination with multiple 3rd parties in both the public and private sector."
  8. He continued, "‘Giga' isn't just an attempt to make batteries at 10x scale. We think it aims to unbundle individual components of the cell (anode, cathode, separator) to Tesla's spec across multiple firms, effectively turning today's cell competitors into tomorrow's cell component partners."

Tesla is up 0.59 percent at $197.25 in Tuesday's pre-market.

Posted-In: Adam Jonas Morgan StanleyAnalyst Color

 

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