Morgan Stanley analyst Adam Jonas is telling investors to “expect another challenging year for the auto business” in a new note on Tesla (TSLA) and its non-auto staples, including the EV maker’s ventures into robotics and AI, that could push the stock higher against margin pressures. Jones’ team reiterated the “Overweight” rating and $380 price target per share it has on Tesla’s stock.
Yahoo Finance Autos Correspondent Pras Subramanian breaks down Jonas’ note and the outlooks for Tesla and the automotive industry in 2024.
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Video Transcript
JULIE HYMAN: It’s Tesla. The shares are jumping. We did have a batch of upbeat news driving sentiment on Wall Street, including a note from Morgan Stanley’s Adam Jonas. Pras Subramanian’s here with the details. And we were talking a little bit about this note earlier. But it’s very interesting that he looks at this company, and I guess he has for a while, as bigger than just cars.
PRAS SUBRAMANIAN: Yeah, beyond an auto company, is what he’s sort of saying. There’s a way to drive his bull case, I guess, for the shares of the company next year, in 2024. Looking ahead to things that are non-auto, non-core is what he says, to the business.
And it’s funny because he mentions in the note later on that he has got significant pushback from clients about this. And he’s still– you know what? Actually, I’m a true believer in this stuff, like for instance Optimus robot Tesla adjacent technology, tech that could append the label market. Dojo supercomputer, we talked about this before.
The supercomputer that can be used for any number of purposes like AWS in that sort of realm of possibilities for the Amazons. Huge EBIT mover with AWS. Also noting their edge AI. Imagine your car has a robotic edge AI device.
Beyond this collecting information for FSD, imagine the key for your car is a phone, a Tesla phone, stuff like that. I also want to note the EV infrastructure kind of boost there. As GMs and the Fords of the world pulled back on spending, Tesla can step up on new spending for AI, for FSD, for their supercharger network, which they’re using legacy OEMs for, that sort of thing.
JOSH LIPTON: And how much, Pras, is also the bullishness there? Because has it been also in part he’s looking at rivals who are kind of pushing out these EV-related investments and saying, OK, that’s runway for Elon Musk?
PRAS SUBRAMANIAN: Right. As the legacy guys pull back, it gives you an opportunity to push in and spend more and gain more market share in those Tesla car adjacent stuff– software, supercomputing and the EV infrastructure stuff like the charging networks we’re talking about. That’s a big deal there.
But I just want to note that it’s funny because– not funny, but his model for 2030 and beyond includes these services as being a huge factor in Tesla’s profitability and revenue growth there. So it’s something that we’ve seen other bulls like Dan Ives talk about that as well. It’s just so far out that I think that’s why clients are saying, hey, what about next year?
JULIE HYMAN: Well, next year, he says auto margins are going to go down.
PRAS SUBRAMANIAN: Yeah, right.
JULIE HYMAN: They’re going to be lousy.
PRAS SUBRAMANIAN: Potentially negative operating margin, which is– that’s the first I’ve heard of that. But he’s still noting that and saying, hey, you know what? Look to the long term, not just 2024.
JOSH LIPTON: All right.
JULIE HYMAN: We’ll see.
JOSH LIPTON: Keep eye on that, Pras. Thank you so much.
PRAS SUBRAMANIAN: Well, if they get him on here to defend it actually.
JOSH LIPTON: That’s a formal invitation.
PRAS SUBRAMANIAN: Someday. Someday.
Source: finance.yahoo.com
