Tesla's (TSLA) 'Full Self Driving' Could Unlock the Extreme Bull Investment Scenarios - Morgan Stanley

Morgan Stanley analyst Adam Jonas reiterated an Equalweight rating and $680.00 price target on Tesla (NASDAQ: TSLA) but sees a way to not only justify the current valuation, but unlock the 'extreme bull scenarios' some investors are gushing over. If the Full Self Driving Solutions are embraced by customers, it would offer Tesla a recurring revenue stream and justify software like multiples on that component of the business. Seems pie in the sky? Not so fast, on the 4Q19 call, Elon stated the following in response to a question on China profitability:

"I mean the thing that's really going to, I think, probably just have a profound effect on our financials is like -- is high volume and high margin, obviously. And that high margin part comes from autonomy. So do people buy the Full Self-Driving package or not and do they buy it worldwide or only in certain places? For example, our autonomy is not as good in China as it is in the U.S. So fewer people -- a very small percentage of people buy the FSD package in China. But as we fix that, then we will see a much higher people -- percentage of people buying. And as we are close to Full Self-Driving, that's just going to become more and more compelling. So that's – from a financial standpoint, that's the real mind-blowing situation, is high volume, high margin because of autonomy."

After examining the potential impact this could have on the business over 10 years, the analyst stated "Over time, Tesla fundamentals can potentially reflect a level of resiliency, growth and profitability more reminiscent of high valued, tech-oriented companies in a steady state. We note that Tesla’s vertically integrated auto manufacturing footprint, dependence on human labor and elevated exposure to China risks currently stand as a challenge to this transition".

For an analyst ratings summary and ratings history on Tesla click here. For more ratings news on Tesla click here.

Shares of Tesla closed at $811.00 yesterday.

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