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Here’s Why You Shouldn’t Ignore Wall Street’s Upgrade of Tesla Stock

Last Updated September 23, 2020 2:24 PM
Mark Emem
Last Updated September 23, 2020 2:24 PM
  • Two months after downgrading Tesla, Morgan Stanley has issued a new rating for the stock.
  • The Wall Street firm sees new opportunities arising from supplying batteries and powertrains.
  • Stanley estimates this business could increase Tesla’s value by $310 per share.

Days after Tesla (NASDAQ:TSLA) announced a share split, Wall Street is offering more reasons to buy the stock. The market is already ahead of the analysts, though.

Morgan Stanley analyst Adam Jonas has upgraded the stock  from underweight to equal weight. Jonas has assigned a price target of $1,360 from $1,050. The stock closed Thursday at $1,621 a share–nearly 20% above the mark.

TSLA jumped roughly 20% since a stock split was announced. | Source: Yahoo Finance 

Tesla Downgraded, Then Upgraded by the Same Analyst in Two Months

Just two months ago, Morgan Stanley downgraded Tesla’s stock. Jonas now attributes the sudden shift to Tesla’s opportunity in the broader electric vehicle (EV) battery industry.

The Wall Street analyst believes Tesla is well-positioned to build a vertically integrated battery supply business that sells batteries and EV powertrains to third parties:

We see scope for Tesla to be both manufacturer and consumer… we believe [Tesla] can disrupt the broader EV battery industry with potential to grow the pie itself.

Stanley values the third-party battery and EV powertrain supply business at $310 per share.

For Tesla to succeed, according to Morgan Stanley, the battery technology must be competitive in terms of range and market-readiness. Currently, Tesla partners with Panasonic in making batteries.

VIDEO: Tesla Gifactory in Nevada will supply the EV maker with batteries as demand rises

Competitors Spark a Battery Tech War

With the proliferation of new energy vehicle companies, there is an existing market for batteries and EV powertrains. The competition will be stiff, though, as both startups and traditional carmakers set their eyes on the EV market.

At the Battery Day event slated for September 22, Tesla is expected to unveil the next-generation battery technology. The event might wow, but that doesn’t mean rivals have been asleep at the wheel.

As of May, General Motors (NYSE:GM) indicated it was almost ready to unveil a one-million-mile battery . This next-generation battery would increase the lifespan of EV batteries by between five to ten times. Existing batteries last between 100,000 to 200,000 miles.

GM is taking the fight to Tesla not just with electric versions of its popular models but advanced battery technology, too. | Source: @GasOff2/Twitter 

Rivals Are Coming for Tesla

For a long time, Tesla vehicles had a unique selling proposition–namely, their relatively superior range. Now competitors are gearing up to overtake the firm.

For example, California-based luxury mobility firm Lucid Motors will launch a competitor to Tesla’s Model S sedan known as Lucid Air.

The Air sedan reaches 517 miles on a single charge. It will be launched on September 9, less than two weeks before Tesla’s Battery Day. The Long Range Plus Model S  boasts a range of 402 miles. The Environmental Protection Agency provides the range estimates for both luxury sedans.

Lucid Motors claims its Air sedan exceeds the range of Tesla Model S on a single charge by over 100 miles. | Source: @LucidMotors/Twitter 

Tesla has long enjoyed the advantage of being the first-to-market with superior battery technology. Now, as the EV space enters a new phase, that will be severely tested.

Don’t bet against Morgan Stanley revising its TSLA rating yet again.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.