A new note from Morgan Stanley analyst Adam Jonas argues that for Tesla stock to recover from its steep sell-off, Tesla at $215: Where’s the Next Price Move? Tesla must prove it can expand into high-margin businesses beyond automobile manufacturing.
With shares falling to around $215, Tesla now trades at just 5x 2024 earnings projections after frequently garnering over 100x forward P/E ratios in the past. But according to Jonas, merely improving short-term execution or sentiment around the core auto business will not be enough.
Instead, Tesla must make progress towards more capital-light revenue streams in software, services and licensing. This will require rapidly growing its user base while also moving into incremental markets beyond point-of-sale auto purchases.
So far, Tesla remains heavily concentrated in the one-time sale of vehicles, resulting in high capital intensity. But an ‘App Store’-like marketplace around Tesla’s products could unlock recurring high-margin revenues.
Morgan Stanley believes monthly active Tesla users could expand 10x from around 5 million today to 50 million by the early 2030s, sees $500B potential from Dojo supercomputer. Capturing greater lifetime value per customer is viewed as essential.
For Tesla’s valuation to recover, Jonas points to three key areas:
– Avoiding further misses versus Wall Street consensus estimates after several downgrades over the past year.
– Successful launches of new vehicles like the long-delayed Cybertruck.
– Most crucially, demonstrable progress in evolving Tesla’s business model towards more software, licensing and services, and robotaxis.
Morgan Stanley sees Tesla’s auto dominance as peaking, meaning new initiatives around areas like autonomous driving, energy storage products and non-automotive licensing become vital next growth drivers.
Unless Tesla can shift towards more stable, recurring software and services revenues, Morgan Stanley expects continued pressure on the historically rich automotive valuations Tesla once commanded.