Market Overview

Here's The Morgan Stanley Report Everyone's Talking About (TSLA)


Morgan Stanley is out with an incredibly bullish research report on Tesla Motors (NASDAQ: TSLA), as it upgrades shares to Overweight and raises the price target to $70, sharply higher than where shares are currently trading.

Shares are moving sharply higher in pre-market trading, gaining more than 15% as 10 million shares are sold short, and a big percentage of the shorts are going to cover.

In the research note, Morgan Stanley writes, "xEV market entering higher volume and it's happening right now: We are convinced electric cars will comprise a significant minority of global light vehicle sales medium-term and the majority longer term. Our global xEV model suggests penetration of 5.5% globally by 2020 and >15% by 2025. Even on our forecasts, the Internal Combustion Engine (ICE) remains by far the dominant form of propulsion for a very long time."

Morgan Stanley's Adam Jones, the analyst who wrote the report, goes on to say, "There are few things in business as risky as starting an auto company – especially one that relies on entirely new technology that is not likely to be competitive vs. the established internal combustion engine for more than a decade. However, conditions are ripe for new entrants and we believe Tesla can be a significant volume player in the auto industry. We believe the market for xEVs (plug-in-hybrids or PHEVs and pure EVs) is underestimated as rising oil prices and government support accelerate the shift away from the internal combustion engine. This shift has made room for entirely new players to join the ranks of currently entrenched OEMs, and has afforded Tesla the opportunity to establish itself as America's fourth automaker. The biggest risk remains Tesla's own execution of its plan. Despite its extremely risky profile, the almost 200% upside to our base case $70 price target is enough to justify an Overweight rating."

Morgan Stanley has a bull case price target of $135, which consists of: "Production far beyond Fremont. Global car market runs at 3.4% CAGR through 2025. Global xEV penetration at 7% by 2020 and 21% by 2025. Tesla EV share peaks at 11% and >8% long term. Pricing similar to base case. Mix stable over time due to higher contribution from Model S and Model X and higher content uptake on Gen 3. Break-even OP reached in 2013, OP margin peak at 23%, normalize at just under 20%."

If you believe that Morgan Stanley is anywhere close to being right on Tesla, then now looks like a great time to invest in shares, as shares are well below the price target Morgan Stanley and Jones put on the stock.

At last check, shares were up $3.60 to $27.31, a gain of 15.2% in pre-market trading.

Posted-In: Morgan StanleyAnalyst Color Long Ideas Upgrades Price Target Analyst Ratings Trading Ideas Best of Benzinga


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