Coin Toss: Morgan Stanley Raises Tesla Bull Case To $500, Keeps Bear Case At $10

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by Tyler Durden
Friday, Dec 06, 2019 - 14:30

Ah, is it any wonder gullible clients pay tens of thousands of dollars per year for access to exclusive sell side research?

What would savvy Tesla investors be doing from the sidelines without access to Adam Jonas' prescience over the last few years on Tesla? His constant excuse making for the company, coupled with ever-declining EPS targets and vague predictions about where the stock is going are the perfect fodder for the critical thinkers that are long the stock. 

Case in point: yesterday's note on the company, which can be summed up with this exceptionally vague chart pointing out that in the future, Morgan Stanley predicts that Tesla stock can go - well, anywhere - over the next 12 months. 

Jonas cites the new Cybertruck, which may or may not ever wind up actually existing and being produced, as the key part of his reasoning for raising his bull case on the company's stock. Jonas predicts the company could be able to sell 100,000 Cybertrucks by YE2024 (yes, four years from now) at an ASP of $50,000, despite Musk pitching the truck as starting at $39,900:

We assume that, in an optimistic scenario, by YE2024 Tesla is able to sell 100,000 Cybertrucks at an average selling price of $50,000, and EBITDA margins of 20%. At 6.0x EV/EBITDA and a 12% discount rate, this implies a per share value of $20 to TSLA. According to Elon Musk's Twitter, Tesla currently has 250k pre- orders for the Cybertruck, so this math implies that roughly 40% of those 250k pre-orders translates to an actual sale by 2024; in our opinion, we believe this is a fairly optimistic assumption, given that a pre-order only requires a $100 refundable deposit.

If we use the Hummer H3 as a proxy, according to IHS sales for that vehicle peaked at about 60k units globally, albeit mostly in North America, so for now we believe 100k units is an appropriate bull case assumption. We note we do not include theCybertruck in our base case given the high degree of risk associated with the product's success, such as the truck's rather polarizing design (although the Cybertruck's design has grown on many investors we have spoken to). We are comfortable with this until we receive more clarity from the company on the roadmap for the product.

The note also tacks on another $40 to the bull case due to China - despite the fact that we pointed out yesterday that Beijing doesn't really seem interested in subsidizing electric vehicles any longer. The bump in target also comes despite Jonas' admission that the market may eventually look at Tesla as a traditional auto OEM, which is exactly what the company is:

We believe that our long-term base case China forecasts are rather conservative with Tesla sales in the region peaking at approximately 250k units by 2024/2025. For our bull case, we assume a significantly more optimistic scenario, vs our base case, of 200k units in incremental volume in 2025 (~450k total units), revenue per unit of $40,000, and EBITDA margins of 23% (based on our analysis of potential China profitability). At 7.0x EV/EBITDA (a 1.0x premium to the Cybertruck, given the likely better margin profile) and a 12% discount rate, this implies incremental per share value of $40 to Tesla. To be clear, we are not bullish on Tesla longer term, especially as, over time, we believe Tesla could be perceived by the market more and more like a traditional auto OEM; we are prepared for a potential surge in sentiment through 1H20 but question the sustainability.

And what would a Morgan Stanley note be without mention of the non-existent Tesla Mobility and the non-existent Tesla Semi:

Tesla is distinctively positioned to commercialize an app-based, on-demand mobility service but faces increasing competition from well-capitalized tech companies. Optionality to new model introductions (Model Y, pickup truck) could significantly expand volumes and profitability. Launch of local China Model 3 production creates tailwind to volume and gross margins through much of 2020. Tesla 'semi' is real but we think difficult to move the needle.

Then it's on to "cover your ass" mode, as Jonas calls Tesla "fundamentally overvalued, but strategically undervalued" in this flash of brilliance:

We believe 2020 offers a strong event path for the stock; there are a number of catalysts over the next year, whether it be China milestones, Model Y, or new technology announcements that would allow Tesla to potentially test the upper bound of our admittedly wide bull-bear skew. We still see Tesla as fundamentally overvalued, but strategically undervalued. We are cautious on Tesla's prospects in China, given geopolitical/CFIUS concerns, we believe that the Model Y will likely cannibalize a significant amount of demand for the Model 3, and see Berlin Giga as a first step for Tesla to ultimately be seen by investors as an auto company rather than a high growth tech firm, with valuation reflecting that at some point.

Here a summary of the broad range of outcomes for Tesla share price that Jonas predicts.