Despite the broader downturn impacting the electric vehicle industry, Tesla’s (TSLA) core electric-vehicle manufacturing business has managed to weather the storm. Elon Musk-led Tesla has successfully grown its ancillary businesses, earning the praise of analysts at Morgan Stanley.
Adam Jonas, an analyst at Morgan Stanley, reiterated Tesla as the firm’s top pick in the U.S. auto industry. He cited the company’s diversification strategy, stating that Tesla is actively mitigating downside risks to its core auto business while simultaneously allocating resources to stationary energy, compute infrastructure, robotics, and other AI-related endeavors. This strategic shift has earned Tesla an ‘Overweight’ rating and a $310 price target from Morgan Stanley.
However, Tesla’s share price has dropped over 50% from its all-time highs, and its performance has lagged behind mega-cap tech companies over the past three years. Jonas attributes this underperformance to a decline in consensus estimates over the past year, emphasizing the need for Tesla to focus on cost control. He believes that demonstrating cost control will be crucial for investors to appreciate the expanding non-auto aspects of Tesla’s business model, particularly its AI-focused ventures.
Tesla’s 2024 GAAP operating profit forecast stands at $5.6 billion. However, after accounting for zero-emission vehicle credits and Tesla Energy operating profits, the core auto operating profit is estimated to be $2.2 billion. Jonas suggests that a substantial portion of this profit is likely derived from captive dealer margins and recurring revenue streams like connectivity, charging, software services, upgrades, and full self-driving features. This suggests that the auto business itself might be loss-making in 2024.
Despite this outlook, Jonas remains optimistic about Tesla’s future growth prospects, emphasizing the importance of its non-auto businesses. He notes that Tesla’s significant operating expense burden is largely attributed to non-auto sectors, particularly AI infrastructure.
The upcoming Robotaxi Day event, scheduled for October 10th, is expected to feature a demonstration of Tesla’s latest iteration of Full Self-Driving (FSD) technology and a fully autonomous ‘cyber-cab’ prototype. While the event will primarily take place in a closed or semi-closed environment, it will offer insights into Tesla’s progress in autonomous driving. Jonas points out that Tesla currently holds a permit for autonomous vehicle testing with a driver but does not yet have a permit for driverless autonomous testing or deployment.
In premarket trading on Friday, Tesla’s stock price fell 0.84% to $228.24. Despite the recent downward trend, Tesla’s diversification strategy and its focus on cost control, coupled with its growing presence in the AI domain, suggest potential for future growth and investor confidence.
