Morgan Stanley go all in on Tesla


We’ve joked before on this blog about how the market is rewarding businesses where the pitch seems to be their profitability is as far away as logic can stretch. “Don’t think about what we are, think about what we might become, and then add 10 years,” seems to be the mantra.

Take this one example. Back in early June, we took a look at a Goldman note on Chinese electric car maker Nio, which derived its price target for the business from its forecasted 2030 earnings. Nine whole years away.

Oh, how we laughed at time. After all, it is insanity to think — particularly after this year of all years — that anyone knows what the electric car market will look like in 2025, let alone five years after that.

Of course, the stock is up 732 per cent since. Nice one.

Yet, even though we’ve got used to EV/ebitda multiples based on 2025 earnings being slapped on upstart companies, we weren’t quite ready for what landed in our inbox from Morgan Stanley’s Adam Jonas this morning.

A new note on Tesla, obvs, and, as might be expected, a higher price target: $540 up from $360 — putting Mr Jonas firmly second among the sellside fraternity.

The valuation is derived from a “sum-of-the-parts” method — a well worn practice of valuing different segments of a business to form a total valuation. Of what though? Well . . . we’ll just leave you to gawp at this:

Tesla Auto: $254/share. 10 yr DCF derived. We assumes 3.8 million units by 2030 (from ~500k in 2020). Exit ebitda margin of 18.7% (12.2% EBIT). WACC of 8.0%, terminal value ebitda multiple of 13.0x. Valuation implies 24.4x 2022 EV/ebitda or 12.6x 2025 EV/ebitda.

Tesla Energy: $12/share. 20 yr DCF derived. We assume 607 MW of solar deployed (from 179 MW today) and 11.8 GWh of Storage deployed by 2030 (from 2.1 GWh today). 13% revenue CAGR from 2019 to 2040. Gross margins of 25.0% by 2030. WACC of 9.5%. Terminal Growth Rate (TGR) of 4.0%. Valuation implies 30.5x 2022 EV/ebitda or 19.2x 2025 EV/ebitda.

Tesla Insurance: $15/share. 20 yr DCF derived. We assume 18% penetration of Tesla Insurance from its vehicles in service with underwriting margins of 14.0% in 2030. WACC of 10.0%. TGR of 3.0%. Valuation implies 28×2025 EV/Sales as the business is still in the early stages of roll out.

Tesla Mobility/Ride-sharing: $38/share. 10 yr DCF derived. We assume the ‘robotaxi’ fleet rises to >500k by 2030 (2.3% of total Tesla car parc) with $1.70/mile and OP margins of 14.7% in 2030 vs 0% in 2025. WACC of 10.0%, TGR of 4.0%. Valuation implies 7.8x 2025 EV/Sales.

Tesla Network Services: $164/share. 20 yr DCF derived. We assume a 12mm connected fleet by 2030 (60% penetration/attachment rate) with ARPU of $100 by 2030. 60% 2030 ebitda margin. Probability of 80% ascribed (i.e.20% discount to valuation of NPV). WACC of 8.0% (same as core Auto Co despite better financials) and TGR of 4.0%. Valuation implies 36.3x 2025 EV/Sales or 60.5x 2025 EV/ebitda or 0.42x 2025 EV/Sales to growth (0.92x 2022 EV/Sales to growth) in line with the highest growth SaaS firms.

Tesla as a 3rd Party Supplier: $58/share. 20 yr DCF derived. We assume 2.5mm 3rd party EV powertrain shipments at 20% EBIDTA (sic) margins. WACC of 9%. ebitda terminal multiple of 17x. Valuation implies 3.5x 025 EV/Sales

It really has it all doesn’t it? But special attention should be drawn to the discounted cash flow analyses on Tesla Network Services, Tesla Mobility and Tesla as a Third Party Suppler — particularly the latter two, as they literally do not exist at the moment anywhere except in the wild imagination of Tesla bulls.

As one buyside analyst remarked to us on the note, “it’s expensive on what we know, and cheap on what we don’t.” We couldn’t have put it better ourselves.

Tesla’s share price is up 3.17 per cent to $455.60 in early trading.




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