Al Root
Morgan Stanley analyst Adam Jonas hosted a bull/bear lunch in New York recently to discuss Tesla.
Investors wanted to talk about "anything but cars."
"After establishing that consensus is expecting a 15%-type 4Q gross auto margin ... and 10% to 15% volume growth in 2025, there was extremely little discussion about the Tesla core auto business," wrote Jonas in a report Thursday.
Both things look doable. Tesla posted third-quarter automotive gross profit margin of about 17%, excluding any regulatory credit sales, in the third quarter. And CEO Elon Musk is targeting 20% to 30% volume growth, helped partly by a new lower-priced model due early this year.
If cars don't matter for Tesla stock, then what does? In short, artificial intelligence, said Jonas. Investors want to see AI-trained, self-driving Tesla cars on the road. They also want to see more development of Optimus, Tesla's AI-trained humanoid robot.
Tesla plans to launch a self-driving robotaxi service by the end of 2025. Musk also has suggested that robot sales could start this year. Having both happening are what can drive Tesla stock higher.
Shares already have had an impressive AI-fueled run. Coming into Friday, Tesla stock has risen more than 70% since the company's Oct. 10 Robotaxi event and have gained more than 60% since the Nov. 5 presidential election.
Tesla's Robotaxi Day outlined the company's plans for a robotaxi service. What's more, investors expect the incoming Donald Trump administration to accelerate federal rule-making to encourage autonomous vehicle deployment.
Shares were up 0.9% at $417.40 in premarket trading, while S&P 500 and Dow Jones Industrial Average futures each rose about 0.4%.
Jonas rates Tesla shares Buy and has a $430 price target on the stock. The car business only accounts for $89, or 21%, of his target price. For Jonas, "anything but cars" makes some sense.
He values Tesla's self-driving-related technologies, including robotaxis, at $258 a share, Tesla's battery storage business at $66 a share, and expects Tesla to supply technology to other automakers eventually. That's worth $17 a share.
He doesn't have a value for humanoid robots. Jonas is waiting to see how the technology, supply chain, and costs develop.
Jonas is at the higher end of analyst price targets. The average price target for Tesla shares is about $317, according to FactSet.
That's below where shares have been trading, but still values Tesla at $1 trillion, multiples of the combined value of many traditional auto makers. For most of Wall Street, it seems, Tesla is about more than cars.
Write to Al Root at allen.root@dowjones.com
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January 17, 2025 06:57 ET (11:57 GMT)
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