Tesla (TSLA) -) shares moved higher in mid-day Tuesday trading after a key Wall Street analyst touted the influence of AI technology on the carmaker's long-term earnings potential.
Morgan Stanley, in a note led by the bank's star analyst, Adam Jonas, reiterated its overweight rating and $380 price target on Tesla stock, even as it cautioned that profit margins in its legacy carmaking business would continue to be pressured in the coming year.
Tesla, Jonas and his team argued, is valued at more than its current market price based on the host of other business dynamics tied to the sales of its electric vehicles. Those include licensing its Full-Self-Driving driver-assistance system, broader network and mobility services, as well as its battery, energy and insurance divisions.
Key to Tesla's additional value: DoJo supercomputer
Chief among those, however, is Tesla's DoJo supercomputer, which is powered by AI technologies. Jonas has said this system could add more than $500 million to Tesla's market value "through a faster adoption rate in Mobility (robotaxis) and Network Services (software as a service)."
“It’s not terribly surprising that auto investors are cautious on Tesla given increased competition and a lack of high-volume new products in 2024,” Morgan Stanley analysts said in a note published Tuesday.
"Many investors still debate the merits of Tesla as ‘more than an auto company.’ In our opinion, Tesla is definitely an auto company. It is also an AI company," Jonas' team wrote.
"Think ‘and,’ not ‘or,’" the note added.
DoJo supercomputer is Tesla's AI focus
Tesla CEO Elon Musk has said DoJo, powered by artificial intelligence, will not only support his own company's drive toward autonomous vehicles but also the company's ability to license its full-self driving technology to major automotive rivals. Musk has identified autonomous driving as the key to future profitability.
Tesla now has data based on around 300 million miles of driving. Musk said the figure will "soon be billions of miles and tens of billions of miles," providing a huge competitive advantage for the company as it ramps up investments in AI and other technologies to harness its potential.
That said, Morgan Stanley also sees further margin pressure for Tesla over the coming year as it continues to focus on price cuts in the hypercompetitive EV market in order to maintain its overall dominance.
"We expect another challenging year for the core auto business," Morgan Stanley said. "We could not rule out the potential for Tesla's gross auto margin to test 10% or the core [operating-profit] margin to flip negative (for a quarter) in the year ahead."
Tesla faces EV-demand headwinds
Tesla is also facing demand headwinds that will test its stated goal of delivering 1.8 million vehicles this year. Data earlier this week showed the carmaker posted the biggest slump in China sales in nearly a year.
The China Passenger Car Association said Tesla last month sold 82,432 vehicles in the world's biggest market, up 14.3% from October but down nearly 18% from the year-earlier period. That annual decline was the biggest since last December.
Sales from BYD (BYDDY) -), meanwhile, were up 31% from a year earlier to a record 301,378 units as Tesla's China-based rival continues to win market share thanks in part to its partnership with Mercedes-Benz.
Tesla shares were marked 2% higher in mid-day Tuesday trading to change hands at $257.61 each, pegging the stock's six-month gain at around 6.5%.
Short interest — measuring bets that a stock will decline in price — in Tesla remains elevated at the highest levels in the world. Investors have placed bets against the group of around $18.63 billion, or 3.03% of the stock's entire float, according to recent data from S3 partners.
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