Adam Jonas: “To Only Value Tesla On Car Sales Alone Ignores The Multiple Businesses Embedded Within The Company”

The news around Tesla being added to the S&P 500 is resonating through the stock world, and today, Morgan Stanley’s Adam Jonas lifted Tesla [NASDAQ:TSLA] to overweight and raised his one-year price target to $540 a share. The Street noted that TSLA finally won the favor of Morgan Stanley’s equity research team and that Jonas predicted that Tesla is on the verge of a “profound model shift” — from selling cars to generating high-margin software and services revenue.

In a research note to clients, Jonas admitted that Tesla wasn’t just a car company. “To only value Tesla on car sales alone ignores the multiple businesses embedded within the company,” he said, while upgrading the shares from equal-weight and raising his price target by 50% — from $360 to $540, which suggests an additional upside of 22% for the stock.

Morgan Stanley’s new valuation includes Tesla’s network services, energy storage, and insurance businesses, and Adam Jonas noted that the internet-of-cars opportunity is very real and a prerequisite to unlock further gains for the stock. The Financial Times pointed out that Morgan Stanley is going all-in on Tesla, and the author of that article noted that they weren’t ready for the big news from Jonas that morning. The article included a few quotes from Jonas’ email that detailed his thoughts on different segments of Tesla, including Auto, Energy, Insurance, Mobility/Ridesharing, Tesla Network Services, and even Tesla as a 3rd party supplier.

FT noted that special attention should be drawn to the discounted cash flow analyses on Tesla Network Services, Tesla Mobility, and Tesla as a third party supplier — especially the latter two because “they literally do not exist at the moment anywhere except in the wild imagination of Tesla bulls.”

The important thing, though, is Tesla isn’t just an automaker. It’s a technology company. Actually, it’s more than that–applying one label to a company that is affecting many industries just shows how misunderstood Tesla actually is.

Tesla’s CEO, Elon Musk, said it best when he described Tesla as several technology startups. “Tesla should really be thought of as roughly a dozen technology startups, many of which have had little to no correlation with traditional automotive companies,” he said in a tweet reply to CleanTechnica. “For example, we created a chip design team from scratch for the Tesla full self-driving computer, which is not something car companies do,” he added.

Elon also reaffirmed his thoughts during Tesla’s Q3 2020 earnings call. “The thing, I think, that people just don’t really understand about Tesla is that it’s a whole chain of startups. And they’re like, well, you didn’t do that before. Yes, but we’re doing it now. I mean, I think, so far, we have not — we’ve maybe been a bit slow with some of the startups, but I don’t think we’ve had any of them fail.”

Eventually, Analysts Will See The Light

Although some analysts refuse to see Tesla for what it truly is, it’s probably not due to them lacking in intelligence, but from having an oversupply of bias against Elon Musk. Last month, I spoke with Ross Gerber, CEO of Gerber Kawasaki, over the phone, and Ross helped me understand the mentalities that many analysts have. Many analysts either don’t understand the technical side of Tesla or don’t understand and don’t believe in the people involved. In Tesla’s case, it is largely about Elon Musk. Elon is known for making bold statements that have critics saying, “no, you can’t do this — it’s impossible.” And then Elon proves them wrong. And people don’t like being proven wrong.

When someone invents something new and, using the airplane as an example, they say — “I’ve invented the airplane. Watch, I can fly.” — everyone says. “You’re crazy. You can’t fly. Nobody can fly. Only birds can fly.” That’s just normal for people in these kinds of positions. They are not ground breakers. They are following a system put in place long before they came along, an established formula basically. “I don’t know how many people believed the Wright brothers, and I don’t know what kind of headache they went through trying to do what they were doing, but I’m sure that it was a very difficult process,” Ross told me.

He also pointed out that any new invention that changes the paradigm of expectations has this problem. The skeptical public and the analysts, Ross said, just don’t think that big. And the other part of this is trusting and believing in the people involved — trusting that they know what they are doing, and know what they are talking about.

“This is how I made a lot of money on Tesla. It’s not, per se, some superior understanding of technology. It’s just that I understand that Elon understands technology better than anybody, and so I’m betting on Elon. My expertise is only so much, but I don’t have to be [an expert] because I know the guy I’m betting on knows his stuff better than anyone in the whole world,” Ross concluded.