On the 17th of August, Adam Jonas, Managing Director of the Global Auto Research Team at Morgan Stanley was very optimistic about the share price of Tesla Motors. Let alone a 10% increase in the company’s target price, Adam noted his target price to be $465, more than 90% of the $243 closing price on Friday and more than 60% of his old target of $280, but what is the main proponent in doing this and why so suddenly?
The main reason for the spike is due to the vision that Morgan Stanley has for Tesla. The analyst believes that a business idea which he calls “Tesla Mobility, an app-based, on demand mobility service” can be the future for the company and the entire electrical automotive arena. Although the creation of autonomous driving is not new to the technology arena, Tesla is positioned very well to play a leading role in the revolution towards shared mobility. Adam Jonas explains that the birth of Tesla Mobility is predictable to happen because Tesla has moved far with its “connected, electric cars” in comparison to its rivals attempting to produce self-driving vehicles hence why it could become a market leader.
In a note to investors, Jonas wrote:
“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…”
For now however, Tesla will be focussing on the new Model X which is to be published by the end of the year. Meanwhile, the launch of the “Tesla Mobility 1.0 urban transport PODS (Position on demand service)” would come after the introduction of Model 3 in 2017. The expectations for the birth of Tesla Mobility is deemed to be very high with Adam predicting that the profitability could more than triple the company’s worth by 2029.
“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.”
Research from the Morgan Stanley team has shown that if no additions to Tesla Motors are added, the base case of the price target would stay at $319 – $280 from Tesla Motors and $39 from Tesla energy. If however Tesla Mobility is added to the production line, the price target can raise to $611 a share at the bull case. As an average, Jonas has belief to put the new price target at $465. What is required to become a high performing shared autonomy firm?
- Vehicle Design & Engineering
- Leadership in Connected Car
- Autonomous Cars/Software Expertise
- Battery/Electric Powertrain Expertise
- Proprietary Infrastructure Network
In the short term, Jonas has said that in order to start Tesla Mobility, the production process will take place in three stages. Notes from Bloomberg discuss that the first version will be a semi-autonomous car but a driver is still required behind the wheel. This should take 3 years between 2018-2021. The second stage will involve a car that is near full autonomy so would work in 99% of situations. The third stage will involve a fully autonomous vehicle that runs by itself. This should be fulfilled within a decade.
Although Tesla has “expertise in autonomous tech,” demand will always be key to profitability. In its current model, Tesla is far behind the major gasoline-powered companies such as GM, Toyota and Volkswagen. Whilst these companies are selling hundreds of millions of cars every year, Tesla is only selling a fraction of this. This could be a problem for Tesla Mobility to gain traction if the demand is low from the beginning.