MS Boosts TSLA Price Target To $465, Days After Underwriting Stock Offering; Sees Tesla Bigger Than Ford And GM

Tyler Durden's picture

The last time Morgan Stanley made a mockery of Reg-S, was in February 2014 when a day before Tesla announced a $1.6 billion convertible offering Morgan Stanley's Adam Jonas raised his PT on TSLA from $153 to $320, sending the stock soaring and assuring far less convertible dilution on the day of pricing. Fast forward 1.5 years when Tesla, having burned through most of this cash (in fact it burned over $1 billion in just the first 6 months of the year), Tesla announced it would sell $500 million in a follow-on stock offering (subsequently upsized).

We were modestly surprised that Adam Jonas did not upgrade the stock just before the equity offering as he did last time. We said the following:

And if there is a reason why Morgan Stanley did not upgrade the stock with a $320 price target yesterday as it did back in 2014 the day before it issued a convertible offering for TSLA, is that this time the lead left is Goldman, not MS: "Goldman, Sachs & Co. and Morgan Stanley are acting as lead joint book-running managers for the offering, J.P. Morgan and Deutsche Bank Securities are acting as additional book-running managers for the offering, and BofA Merrill Lynch and Wells Fargo."

Moments ago, however, all our confusion was put to rest when Morgan Stanley did just as expected, only this time it at least followed protocol when it announced it is raising its price target on TSLA from $280 to a whopping $465, or just shy of $61 billion in implied market cap. Incidentally at this price TSLA would be the biggest US automaker, surpassing not only GM's $50bn in market capo, but also Ford's $60 billion.

And just to make sure the joke's not lost on anyone, Jonas decided to port over the traditionally exuberant Elon Mask hyperbole manifesting itself in the user of Greek-prefixes such as mega, giga and hyper, into his own report as follows:

Raising our Tesla price target to $465 from $280 to reflect the potential for Tesla to lead the revolution of the shared mobility public transportation hyper-structure and more confidence around the commercial viability of Tesla Energy. Our new price target of $465 represents the midpoint of our new base ($319) and bull case ($611) valuation to reflect our view that while a mobility app is likely to be announced within 12-18 months, there is a degree of uncertainty as to if, when and how this product unfolds.

Here are the full highlights from the note:

Ten trillion vehicle miles are driven annually. Firms with expertise in autonomous tech and networked machine learning can exploit the inefficiencies in the current model. TSLA may be uniquely positioned to dominate. Our PT rises to reflect its potential to lead the revolution in shared mobility.

 

The race to capture the 10 trillion. Which firms can capture the most miles and at what price? Today, nearly 100% of these miles are delivered by companies practicing a 100-year-old business model of human-driven, privately owned, internal-combustion vehicles. This is fundamentally changing. In fact, the shared mobility model, i.e., shared transport empowered by smart technology, is significantly enhanced by autonomous cars, enabling higher vehicle utilization. Higher utilization overcomes the poor payback economics of electric vehicles (EVs). Reinforcing this is our view that EVs should work better in an autonomous, shared model.

 

'Introducing' Tesla Mobility, an app-based, on-demand mobility service. Given the pace of technological development both within Tesla and at rival technology and mobility companies, we would be surprised if Tesla did not share formalized business plans on shared mobility within the next 12 to 18 months. This could potentially be followed by commercial introduction in 2018, shortly after the launch of the Model 3, which we think could form the backbone of a possible Tesla Mobility 1.0 urban transport PODS (Position on Demand Service) in 2018. We view this business opportunity as potentially additive to Tesla's existing model of selling human-driven cars to private owners and see potential for this model to conceivably more than triple the company's potential revenues by 2029. That is, selling miles in addition to selling cars.

 

Why is Tesla well positioned in Shared Mobility? If Tesla wants to make good on its mission to accelerate the world's transition to sustainable transport, we see the move to a shared mobility model as critical. Tesla has been the most outspoken auto company on the use of autonomous technology to improve inefficiencies and safety of today's road transport. 100% of Tesla's cars are electric, connected, and able to “learn” through overthe- air firmware updates at any time. No other established automaker can claim this today. As we have written for some time, we expect all car companies would eventually see nearly 100% of their revenues shift from the sale of human-driven/individually-owned cars to robot-driven/shared cars. In addition, Tesla is developing a vast proprietary, company-owned charging and service infrastructure – ostensibly to service its current product offering, but well positioned for fleet management in a shared mobility model. These are early days, but it is the view of the Morgan Stanley global auto team that Tesla may be best positioned to advance the state of the art in shared autonomy.

Huh? And how does this affect Tesla?

Why Tesla?

Why now? Tesla is introducing a suite of sensor and software capabilities in the Model X (due next month), which we believe could set a new industry standard for driver-replacement technologies that could eventually find their way into high-utilization shared mobility models. As the market contemplates the capabilities of this product, more attention should turn to the introduction of the Model 3 (expected to unveil in 1Q16, launch in 2017). While the Model 3 is slated to launch as a traditional “I own it, I drive it” vehicle, we  expect a new application could follow within a year. Tesla's pace of capex and R&D spending through 2020 vastly exceeds its current size and production footprint. We have modeled $14bn of combined spending from 2015 through 2020, for only 2 model families (Model S/X and Model 3), 1 assembly factory, and 1 very large battery factory. On a per-unit basis, this level of spending is nearly 10x that of Ford. Taking together the spending levels, technical expertise, and ambitions of the company, we believe investors can reasonably expect the company to be taking its product offering in a new direction. Adding to the sense of urgency that a Tesla Mobility model could perhaps come sooner than later is the acceleration of new tech rivals encroaching in the area of shared, electric, autonomous mobility (SHEAM). We have written extensively on efforts by Google, Apple, and Uber to get in on the action. Tesla is in a battle for talent, capital, first-mover advantage, and cooperation with local governments and municipalities on a variety of mobility initiatives. And Tesla is not alone.

 

How might the market value Tesla Mobility? A hallmark of a great product or service is if it is substantially cheaper or better than the prevailing alternatives. When contemplating a shared autonomy service, we think it can offer consumers both a superior value and experience versus the current model. Our simulations of the unit economics (drawing on our experience from the auto, taxi, and rental car industries) also suggest a potentially profitable, cash-generative business with substantially less cyclicality than the prevailing auto/credit cycle. An autonomous car, efficiently utilized (sharing model) can do a lot of work at a low cost and provide a high return. The shared mobility model should in many ways resemble today's car rental model but would likely be driven by number of miles, revenue/mile fleet, capital costs (leasing/financing), and direct fleet operating expenses (maintenance, electricity, network, fees, etc). Today's mobility models such as car rental and airlines trade at valuations ranging from 12x to 20x earnings. We expect the market could plausibly value Tesla Mobility by making assumptions about Tesla's share of global miles traveled, and revenues and costs (through at least 2025 or 2030), to which it would apply exit valuation assumptions before discounting the forecasted cash flows back at an appropriate discount rate.

In short, another "story" for the Tesla faithful to digest and throw their money at. And why not: the stock is up $12 already and likely will surge even more as insiders and big holders dump into what are inreasingly more desperate atttempts to sucker in the last money into what is clearly becoming nothing but non-GAAP hype.

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firstdivision's picture

So we'll put Yellen down for $250MM and Dragi $250MM.  Sorry China, you're out of this one.

Ayr Rand's picture

Since you choose to use antiquated and nonsensical units such as MM, I will have to assume that MM = millions of millions, i.e., trillions. That's the only way that your statement makes sense. Then Tesla will have enough money to be (finally) self-sustaining.

Winston Churchill's picture

Mmm. Underwriter was paid in shares,hypes price.

Those fundamentals I understand.

Oh regional Indian's picture

Every time I feel THE shark has been well and truly jumped, someone jumps a bigger shark....

firstdivision's picture

GS offering savings and checking accounts is the ultimate shark.

Utah_Get_Me_2's picture

How many ZHer's have actually seen a Tesla driving on the highway? I think I've seen like 1, maybe.

dontgoforit's picture

Correcto-mundo.  There's one that I know of here where I live.  So, bigger than GM today, smaller than AMC tomorrow.

BTFDemocracy's picture

Seen Teslas all over Europe in the bigger cities- that's in the few months there + all over California. No longer surpises me, kind of like seeing a Porsche.

firstdivision's picture

nonsensical units applies to nonsenscial money.

Fukushima Fricassee's picture
Fukushima Fricassee (not verified) Aug 17, 2015 6:24 AM

May be the government can put the under funded 100 billion in tax confiscations into Tesla storks and fix the fucking pension problem.

indygo55's picture

What a bunch of BS. Who will buy them when they can't even buy food or pay rent? The 1%? 

BandGap's picture

Your pension or retirement fund genius. Your municipality, your semi-rich uncle who happens to be hip.

rejected's picture

The same entity that's buying most of GM's production.

I'll let you guess.

Hint---- It uses OPM.

phoolish's picture

<<autonomous tech and networked machine learning can exploit the inefficiencies in the current model>>

 

Those "inefficiencies" are called FREEDOM.

Oldwood's picture

Plot a graph of freedoms versus technology. By their math, our death should be absolute freedom. I am not a Luddite, but i do think we should be educated enough to at least understand the technology we are dependent on. A sustainable society cannot be based on "magic".

ugmug's picture

So if the government wants to get rid of you all it has to do is instruct the 'Uber Tesla Robotic Car' to have a 'catastrophic malfunction'......

StopBeingParanoid's picture

> Oil at the lowest since 6 years
> Tesla to become the bigget US automaker

pick one.

 

However, here's the bull case: Uber CEO announced the intention to buy 500,000 self-driving cars if Tesla can actually make them; smaller but still pretty big orders could come from Uber copycats all over the world. Moreover, the upcoming model X seems to be an announced blockbuster.
All this vanishes if Audi, Mercedes-Benz and Google (and maybe even Apple) can manage to pull out similar product in similar timeframes.

Place your bets gentlemen.

Arnold's picture

Wow. Minds think alike, not just great minds apparently.

Oldwood's picture

Betting in twenty years no one will be able to afford owning ANYTHING. Waiting on the curb for a ride to our robot repair job, as mandated by Big Gov.

The only "owners" will be the government, everyone will be renters....and servants.

ToSoft4Truth's picture

20 years is a long time.  Work a plan. 

Oldwood's picture

The only survivable plan is to remove one's self from the matrix. Neither pleasant or guaranteed of any quality of life. I already own all that I need, but ownership is what makes us a target. Taxation and regulation will squeeze us till ownership will no longer be a viable choice, as will living on acreage or driving any distance to work. We will all be Chinese in the end.

cwsuisse's picture

YES! It would be quite naive to assume that other car manufacturers could not put a similar cars on the wheels and sell it at a lower price / higher profit than TESLA. I believe that Mercedes-Benz is quite advanced and is even currently field-testing an autonomous truck. The general strategy by the car makers to enhance cars in tiny steps is confronted by TESLA with an opposite strategy. The customers are used to the tiny steps. So far the sales results of TESLA do not provide any evidence that the TESLA strategy is winning. 

Infinite QE's picture

Is MS a division of GS yet?

yogibear's picture

LOL, someone has a lot of stock and now want to dump. So they issue a buy.

Oldwood's picture

So is Tesla going to become a taxi company, or are all the Tesla drivers going to voluntarily become taxi drivers?

Just seems to me that every "growth" theme is premised on NO growth. People can't afford to own and drive their own cars in the future?

Caleb Abell's picture

"People can't afford to own and drive their own cars in the future?"

 

Bingo!

Government needs you to pay taxes's picture

When a politician sees a mob coming, he best get it front of it and call it a parade!  Sure, cars are unaffordable.  But you forget the need to 'keep us safe' and 'save the environment'.  We all know the economy is gonna blow.  Why not increase the population control by restriciting drivers?  This would readily explain away the fact that so few can afford cars. . .Problem SOLVED!

Caleb Abell's picture

Wonderful news.  Computer driven electric cars will not only reduce air pollution and increase the efficiency of the automobile itself, but if the software is provided by Microsoft, they will also go a long way to solving the overpopulation problem.

Uchtdorf's picture

All this while losing $4000 on every car they produce.

Normalcy Bias's picture

Yeah, but they'll make it up on volume, silly! It's the new common core math, I believe.

ncdirtdigger's picture

It's the Amazon business model, they plan to make that up on volume!

johnconnor's picture

don't you worry, Tesla will make up the losses by increasing production volume

booboo's picture

Halon is expensive

quasi_verbatim's picture

Shouldn't that read 'impaled market cap'?

Oldwood's picture

Many of us are concerned about the growing FSA dependence on government, while eagerly being absorbed into the Borg. When we are dependent on multiple layers of systems that few if any understand, how can we speak of freedom?

shovelhead's picture

Who's got time to talk about freedom when you're busy trying to turn that EBT money into methamphetamine?

Latitude25's picture

Sounds like Tesla is branching out into the rental car business.  How unusual.  What a technological innovation!

Anopheles's picture

They already tried governemnt sales but didn't get very far. 

juicy_bananas's picture

"But how can you control matter?" he burst out. "You don't even control the climate or the law of gravity. And there are disease, -"

O'Brien silenced him by a movement of the hand. "We control matter because we control the mind. Reality is inside the skull. You will learn by degrees, Winston. There is nothing that we could not do. Invisibility, levitation-anything. I could float off this floor like a soap bubble if I wished to. I do not wish to, because the Party does not wish it. You must get rid of those nineteenth century ideas about the laws of nature. We make the laws of nature."

-1984

 

Elon reinvented the wheel because we said so!

Lanka's picture

All those big banks are in on the "book-running" deal (appropriately named) so as to collude and maximize their fees. They simply pomote (i.e. pimping) the crap paper to the government employees' pension funds and 401ks; if they can't unload it all, the FED lends a helping hand.  All worthy of RICO racketeering charges.   

Jack Daniels Esq's picture

Musk, Obama - African douchebags - are gonna rip USA a new asshole

cheech_wizard's picture

>Raising our Tesla price target to $465 from $280 to reflect the potential for Tesla to lead the revolution of the shared mobility public transportation hyper-structure and more confidence around the commercial viability of Tesla Energy. Our new price target of $465 represents the midpoint of our new base ($319) and bull case ($611) valuation to reflect our view that while a mobility app is likely to be announced within 12-18 months, there is a degree of uncertainty as to if, when and how this product unfolds.

 

Seriously, WTF did I just read?

Arnold's picture

Segway?............Segway?.............Segway?????????????

 

 

Anybody?........Anybody?......................

Anopheles's picture

Remember when the Segway was first introduced?   "Analysis" and company reps were falling over themselves telling us how Segway would "change the world". 

We're still waiting. 

Montani Semper Liberi's picture

 If I ever come into a substantial windfall like winning the lottery, the first purchase I'd make is a Seqway.

 Can't wait to be "Ridin' White and Nerdy".

buzzsaw99's picture

aapl is (probably) bigger than the entire world auto industry. how funny is that?

JD59's picture

These anal yst are smoking crack cocain. You couldn't pay me to drive one of these POC.