Shares of Tesla (TSLA) are up 0.9% in morning trading Wednesday after Morgan Stanley (MS) analyst Adam Jonas upgraded the stock to overweight from equal weight. He also raised his price target to $540 from $360.
Jonas wrote that Tesla is “on the verge of a profound model shift from selling cars (volume x price) to generating high-margin, recurring software and services revenue.” He argued that the company’s car business provides an “entry ticket into unlocking much larger [total addressable markets].” The company already gets some services revenue from things like premium infotainment and performance upgrades, and Jonas estimates.
“To only value Tesla on car sales alone ignores the multiple businesses embedded within the company,” Jonas said in a research note to clients as he upgraded the shares from equal-weight and raised his price target by 50% to $540 from $360, suggesting 22% additional upside for the stock.
Morgan Stanley’s Tesla U-turn follows Standard & Poor’s announcement Tuesday that the electric carmaker will join the S&P 500 on Dec. 21, a move that had been anticipated for months as Tesla has surprised Wall Street with better-than-expected earnings and sales, which in turn has driven its valuation to new heights.
Tesla will be one of the most valuable companies in the S&P 500 once it’s included.
It also follows the success of Musk’s other multi-billion-dollar endeavor, SpaceX.
NASA and SpaceX made a successful lift off on Sunday evening of a spacecraft carrying astronauts from the U.S. and Japan for travel to the International Space Station – marking the start of a major space mission that’s been years in the making.
To be sure, Tesla isn’t the only EV game in town, at least not anymore. Chinese electric carmaker NIO posted better-than-expected results after the close Tuesday, and said it expects to deliver 16,500 to 17,000 vehicles in the coming quarter.
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