Morgan Stanley analyst Adam Jonas upgraded Tesla (NASDAQ: TSLA) to “Overweight” from “Equal-weight” as he believes the company is on the verge of a profound model shift from selling cars to generating high margin, recurring software and services revenue.

Selling cars is only an entry point for Tesla, which is now close to unlocking much higher TAMs, Jonas writes in today’s note to clients. Morgan Stanley’s latest model includes software/connected vehicle services revenue for the first time.

“Tesla has continued to develop its services/platform business (including pushing various features and services to its vehicle fleet) to a level where we feel that it is appropriate for investors to consider to change how they model the company's revenue and profit streams.

“Due to the growth of service revenue, improved capability (which may trigger step changes in the recognition of deferred revenue) and earnings materiality, we believe it is only a matter of time before investors are provided with far greater levels of disclosure that can trigger a further re-rating of the equity,” Jonas says.

Morgan Stanley analysts project the company’s Network Services business to account for between ~1-2% of revenue today. This is expected to rise to more than 6% by 2030, by which time MS forecasts services to account for between 18% to 20% of total company EBITDA.

“To only value Tesla on car sales alone ignores the multiple businesses embedded within the company, and ignores the long term value creation arising from monetizing Tesla’s core strengths, driven by best in class software and ancillary services.

“We have long viewed and valued Tesla as a SOTP story with positive network synergies. In this report, we expand our SOTP to include Network Services discretely, as well as including value for the Energy (solar + stationary storage) and Insurance. The internet-of-cars (IOC) opportunity is real and, in our opinion, is a prerequisite to unlock further upside to the stock,” the analyst adds.

Jonas also elevated the price objective on TSLA by as much as 50%, going from $360.00 to $540.00 per share. Tesla Auto business is worth $254.00 per share while Tesla Network Services contributes $164.00 per share. Once added to contributions from Energy, Insurance, Mobility and 3rd Party Supply sectors, the final price target is calculated at $540.