Analyst Endorses Tesla Amid Auto Industry Challenges
Tesla, Inc.’s core electric-vehicle manufacturing business has faced the headwinds of an industry-wide downturn, albeit with notable resilience. Led by Elon Musk, the company has successfully expanded its ancillary ventures, drawing admiration from Morgan Stanley’s analyst.
Reaffirmed as Top Pick Despite Setbacks
Morgan Stanley’s Adam Jonas reiterated Tesla as the top pick in the U.S. auto industry, lauding the company’s strategic diversification efforts. He highlighted Tesla’s proactive approach to mitigating risks to its core auto business while venturing into stationary energy, compute infrastructure, and robotics, areas exemplifying embodied AI.
The analyst maintains an Overweight rating on Tesla stock and sets a price target of $310 per share.
Emphasis on Cost Management
Despite a significant decline of over 50% from its all-time highs, Tesla has notably lagged behind major tech counterparts for three consecutive years, as noted by Jonas.
Jonas emphasized the pivotal need for stringent cost controls at Tesla to address the downtrend. With a sharp drop in consensus estimates over the past year, effective cost management becomes crucial for sustaining and growing investor confidence.
Challenges Impacting Margin Growth
Moving forward, Tesla forecasts a 2024 GAAP operating profit of $5.6 billion. However, after deducting estimated zero-emission vehicle credits and the operating profits from Tesla Energy, the core auto operating profit is estimated at $2.2 billion, according to Jonas’s analysis.
Such projections warrant scrutiny, with Jonas raising concerns about the sustainability of Tesla’s auto business profitability. He noted that operational expenses, dominated by non-auto factors like AI infrastructure, could hinder margin growth potential.
Caution Surrounding Robotaxi Day
Jonas expressed reserved expectations for Tesla’s upcoming Robotaxi Day, slated for October 10 at Warner Brothers studios. The analyst anticipated demonstrations showcasing the latest Full Self-Driving (FSD) iteration and possibly a fully autonomous ‘cyber-cab’ in controlled environments.
Highlighting regulatory nuances, Jonas pointed out that although Tesla holds a permit for autonomous vehicle testing with a driver, the absence of a permit for driverless testing poses challenges for broader deployment.
In trading just before the weekend, Tesla’s stock dipped by 0.84% to $228.24.