Market Overview

Morgan Stanley: Tesla China Margins Could Exceed 30%

Share:
Morgan Stanley: Tesla China Margins Could Exceed 30%

Tesla Inc (NASDAQ: TSLA) shares have been on a tear in the past month, and the stock has now erased all its early 2019 losses. On Wednesday, one big analyst said investors may not be appreciating just how much of a margin boost Tesla’s Shanghai factory will provide.

The Analyst

Morgan Stanley analyst Adam Jonas reiterated his Equal-Weight rating and $250 price target for Tesla.

The Thesis

Jonas said producing vehicles in Silicon Valley has been a major drag on Tesla’s profitability, but the new China Gigafactory will be a completely different story.

“Consider labor at 1/10th California wages and other cost reductions (BOM, D&A, logistics, etc.) and we may see Tesla China gross margins pushing the mid-30% range,” Jonas wrote in a note.

China is home to the largest luxury and electric vehicle market in the world, and Jonas said Tesla investors may not fully appreciate the profit opportunity Tesla has there. Porsche already operates in China at gross margins of above 30%.

Looking ahead, Jonas estimates Tesla China sales could add roughly $4 to the company’s 2022 EPS, or roughly $60 per share in value to Tesla’s stock at an earnings multiple of 15 times.

Despite the opportunity in China, Jonas remains cautious on Tesla shares for now given the poor track record other U.S. tech companies have in gaining market share in China.

Benzinga’s Take

Tesla shares have rallied significantly in the past month, but the stock has a long history of extreme volatility. Overall, Tesla shares are now up 43.8% in the past five years compared to a 52.6% gain by the S&P 500 in that time.

Tesla's stock traded around $354.21 per share at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Musk Vs. Einhorn: Tesla CEO Offers Hedge Fund Manager A Pair Of Short Shorts

Whitney Tilson Loses Tesla Bet, Will Donate $15K To Charities

Latest Ratings for TSLA

DateFirmActionFromTo
Dec 2019MaintainsBuy
Dec 2019MaintainsEqual-Weight
Dec 2019MaintainsSell

View More Analyst Ratings for TSLA
View the Latest Analyst Ratings

Posted-In: Adam Jonas China Gigafactory Morgan StanleyAnalyst Color Reiteration Top Stories Analyst Ratings Best of Benzinga

 

Related Articles (TSLA)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
AMRSOppenheimerInitiates Coverage On8.0
SNPSJP MorganUpgrades
USWSStifelInitiates Coverage On3.5
MPWRRosenblattInitiates Coverage On185.0
MODNJP MorganUpgrades
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

Stocks That Hit 52-Week Lows On Wednesday

Detroit Positions Itself As North America's Epicenter Of Mobility