Tesla’s ‘Valuation Problem Gets Worse,’ Says Top Morgan Stanley Analyst

Adam Jonas, a top analyst from Morgan Stanley said in a research note that Tesla’s “valuation problem” is getting worse before it gets better, referring to the company’s inflated stock price. Jonas added that investors are having a difficult time justifying Tesla’s valuation, even after 15 years since going public. It is going to become even more difficult to defend this valuation in the short term, the analyst added.

TSLA stock has skyrocketed over 95% in the past one year, despite having shed 15% value in this year. According to TipRanks’ Statistics Tool, TSLA stock currently trades at a massive P/E (price-earnings per share) multiple of 181.98x. This is significantly high even for a disruptive growth stock. Importantly, analysts are cautious that most of Tesla’s premium valuation relies on “businesses that have either poor disclosure, no disclosure, or that have yet to be launched into the commercial market.” 

Jonas has a “Buy” rating on TSLA stock and a price target of $410, which implies 19.9% upside potential from current levels. Jonas ranks #1,725 out of the 9,558 analysts on TipRanks. He scores a success rate of 52% and an average return per rating of 4.40%.

There Is More to Tesla Than its Auto Business

Jonas highlighted an interesting fact about how investors are valuing Tesla. He said that investors are only valuing Tesla’s core electric vehicle (EV) business currently, and ignoring the other lucrative segments. Jonas said that investors literally “close” their excel spreadsheets after valuing the auto business, and that too at a mere $50 to $100 per share valuation, much below Tesla’s current trading price.  

Jonas believes that this type of partial valuation approach is similar to “valuing Amazon (AMZN) solely as an online retailer or Apple (AAPL) as a seller of glowing rectangles and earbuds.” In contrast, Morgan Stanley analysts assign equal weightage to Tesla’s other arms, including energy storage, autonomous vehicles, and humanoid robots.

Breakdown of Morgan Stanley’s SOTP Valuation

Jonas gave an insightful breakdown of Morgan Stanley’s sum-of-the-parts (SOTP) valuation for Tesla stock. The research firm estimates that each $100 in monthly revenue per vehicle earned by Tesla could equate to $80 to $100 per share in valuation. The firm projects that Tesla’s installed vehicle base could reach 50 million units by mid-2030s.

Furthermore, Jonas calls Tesla’s energy storage business as its “fastest growing and highest margin hardware business.” He has assigned an estimated value of $67 per share to this segment, excluding its future recurring revenue potential, which means it could be valued much higher in the future.

Remarkably, Jonas has not included Tesla’s promising humanoid Optimus robot business in his current valuation. Nonetheless, he projects that every 1% substitution of human labor by Optimus is worth greater than $300 billion, or around $100 per Tesla share. Jonas expects that there could be an Optimus event by the end of 2025, which could unfold more details on this project.

Jonas is also encouraged by Tesla’s autonomous robotaxi business, which is slated to begin commercial operations in Austin next month. The analyst’s meeting with Tesla’s top bras revealed that there could 10 to 20 Cybercabs to begin with. The initial operations will be “invite only” and there would be plenty of tele-ops to ensure full safety, as there is no scope for a mistake, Jonas added. Jonas predicts that Tesla could price the Optimus robot at $20,000 and the Cybercab at $30,000.  

Is Tesla Stock Rated a Buy?

Wall Street prefers to remain on the sidelines on Telsa stock currently. On TipRanks, TSLA stock has a Hold consensus rating based on 16 Buys, 10 Holds, and 11 Sell ratings. Also, the average Tesla price target of $277.78 implies 18.8% downside potential from current levels.

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