Morgan Stanley reiterated its Overweight rating on Tesla (NASDAQ: NASDAQ:TSLA) with a steady price target of $310.00 as the firm pointed out the growth in Tesla's 'Services & Other' revenue, which now accounts for 10% of the company's total sales, as the number of Tesla vehicles in use nears 7 million units.
Despite a notable decrease in China revenues, which have dropped to 18.2% of sales, the lowest in years, the firm emphasized Tesla's booming AI infrastructure assets, a Morgan Stanley analyst said on Friday.
Morgan Stanley also pointed out that for Tesla to be valued as an AI beneficiary, it is essential for the company to first stabilize the negative earnings revisions witnessed within its automotive business.
The analyst noted that Tesla's recognition as an AI company might be delayed until the core auto earnings stop being revised downward, a process which could extend over the next few quarters.
The firm's valuation of Tesla reflects its view of the company as a combination of an automotive stock and an entity involved in energy, AI, and robotics. The core automotive business is valued at approximately $59 per share, which is just about 19% of the overall price target.
Moreover, Morgan Stanley acknowledged that negative trends in the global EV market are significant for Tesla and could impact the stock price negatively in the near term.
However, the firm also advised investors to consider Tesla's other ventures, such as the potential recurring revenue from the Tesla fleet and other areas not included in the $310 price target, like Energy Storage and Optimus.
InvestingPro Insights
Aligning with Morgan Stanley's analysis, recent data from InvestingPro shows a mixed financial picture for Tesla (NASDAQ:TSLA). The company holds a commanding market capitalization of $703.62 billion, underscoring its significant presence in the industry. Despite concerns over earnings revisions, Tesla's strong balance sheet is evident, with cash reserves outweighing debt, an InvestingPro Tip that suggests financial robustness. Furthermore, Tesla's stock has experienced notable volatility, with a 1-week price total return of -7.92%, yet it has managed a 3-month price total return of 30.88%, indicating potential resilience in investor sentiment over the medium term.
Investors should note that Tesla's P/E ratio stands at 57.48, which is high relative to near-term earnings growth, and it trades at a price/book ratio of 10.59. These metrics suggest that the stock is valued at a premium. However, with Tesla's significant role as a prominent player in the Automobiles industry and its liquid assets exceeding short-term obligations, the company appears well-positioned to navigate the challenges highlighted by Morgan Stanley. For those interested in a deeper analysis, there are over 20 additional InvestingPro Tips available, which can be accessed with a subscription. To enhance your investment strategy, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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