Concerns Arise as Tesla Recalls 2 Million Vehicles
Tesla recently made headlines due to a significant recall of over 2 million vehicles. This action was prompted by issues with the company’s autopilot system, which has proven to be faulty.
Morgan Stanley’s analysts have acknowledged these concerns but remain optimistic about the underlying technology.
According to the analysts, Tesla’s essential technology shows promise. The company already has over 4 million vehicles equipped with Full Self-Driving (FSD) capabilities on the roads. Additionally, Tesla boasts around 500,000 paying FSD customers. This massive user base provides Tesla with a vast reservoir of data that can continuously improve its machine learning algorithms.
Legitimate Safety Concerns and Legislative Investigations
However, despite Tesla’s confidence in its autopilot system, ongoing investigations by the National Highway Traffic Safety Administration (NHTSA) regarding multiple accidents raise legitimate safety concerns. This has prompted a need for further examination of the reliability and security of the system.
Morgan Stanley’s price target of $380 comprises various factors. Specifically, they value Tesla’s core auto business at $86 per share, representing only 23% of the total target. The remaining 77% of the target is attributed to other revenue-driving segments such as Network Services, Mobility, 3rd-party battery/FSD licensing, Energy, and Insurance.
The Importance of Diversification and Financial Disclosure
The analysts emphasize that the success of the Overweight thesis heavily relies on Tesla’s ability to establish these additional business lines as significant revenue drivers. It is crucial for the company to provide concrete milestones and thorough financial disclosures to support its growth trajectory.
Addressing the recent recall, Tesla has announced plans to release an Over-The-Air software update to rectify the autopilot system’s issues. The company will provide this update to consumers free of charge. Notification letters regarding the update are expected to be sent to affected customers by February 10, 2024. Morgan Stanley anticipates no substantial cost impact on Tesla’s financials for the fiscal year 2024 due to this recall.
Predicting Future Growth and Earnings
Looking ahead, Morgan Stanley predicts Tesla’s earnings per share (EPS) to experience an annual growth rate of 27% until the fiscal year 2030. Based on their analysis, they expect EPS to reach $5 per share by late fiscal year 2025, $10 per share by late fiscal year 2027, and $15 per share by mid fiscal year 2029.