Instead, the bank views transportation services and related data-centric fields as the key to a bright future for Tesla. “In our view, there’s only one market big enough to propel the stock’s value to the levels of Elon Musk’s aspirations: that of miles, data and content,” Morgan Stanley wrote.
After a recent ballooning in the price of tech stocks, the Wall Street firm was interested in finding which industries could “move the needle” for huge tech companies with market capitalizations approaching a trillion dollars, and moving people and goods around is a ripe target.
Advances in artificial intelligence and increased progress in autonomous cars have made the auto and transportation industry ripe for disruption, with potentially huge windfalls for tech companies getting in on the mobility market, Morgan Stanley said. For example, the firm said Google’s Waymo autonomous vehicle program could be worth as much as $70 billion if it controlled even just a 1% share of the global autonomous driving industry.
Luckily for Tesla, the company has already begun work on its autonomous driving technology. The company recently updated its autonomous steering and parking software and plans to release an autonomous tractor-trailer. If Tesla is able to continue this progress and capture as much at 5-10% of the market for autonomous cars, the company could expand its business dramatically.
Capturing the market for mobility services would require a lot to go right for the company, but it has announced plans to launch an autonomous ride-hailing service, in the vein of Uber or Lyft. Details of the service are expected later this year.
Morgan Stanley thinks the high price of Tesla’ stock price means currently announced technologies are already priced in. The company traded at a -75.18 price to earnings ratio in 2016 because it burns through cash so quickly, but the current price has been justified by investors that expect the Model 3 sedan to sell well and bring the company into positive cash-flow territory, according to Morgan Stanley.
Morgan Stanley increased its bear case from $50 to $175 and restated its price target of $305 and bull case of $550. Tesla is currently trading around $361 and is up 67.9% so far this year.