Tesla Bull Asks Investors To Temper Expectations Concerning Robotaxi Day, But Reiterate Stock As Top Auto Pick: 'Continues To Take Steps To Mitigate Downside Risks'

Tesla, Inc.’s (NASDAQ:TSLA) core electric-vehicle manufacturing business hasn’t been immune to the industry-wide downturn but the Elon Musk-led company has done well to grow its ancillary businesses, earning the praise of an analyst at Morgan Stanley.

Reiterated As Top Pick: Morgan Stanley’s Adam Jonas reiterated Tesla as the firm’s top pick in the U.S. auto industry, citing the company’s diversification strategy. “The company continues to take steps to mitigate downside risks to the core
auto business…while shifting incremental resources to stationary energy, compute infrastructure and robotics and other expressions of embodied AI,” he said.

The analyst has an Overweight rating and a $310 price target for Tesla shares.

Cost Control Need Of Hour: Tesla shares have fallen over 50% from their all-time highs and have significantly underperformed mega-cap tech cohorts for the past three years, Jonas said.

Source: Benzinga Pro

The underperformance is due to the nearly 50% drop in the consensus estimates over the past year and the panacea is reining in costs, the analyst said. “While we are not holding our breath for a turnaround in global EV margins, we feel it’s important for Tesla to continue to demonstrate cost control in the business for investors to begin to appreciate the expanding ‘surface area’ between its business model and the AI theme,” he said.

See Also: How To Buy Tesla Stock

What’s Pinching Tesla’s Margins? Tesla has forecast 2024 GAAP operating profit to come in at $5.6 billion, and stripping off the $2.3 billion in zero-emission vehicle credits Morgan Stanley estimates and the Tesla Energy operating profit the firm models, the core auto operating profit is $2.2 billion, Jonas said.

Assuming much of this comes from captive dealer margin and a range of recurring revenue streams including connectivity, charging, software services/upgrades/full self-driving, etc. would mean the auto business was loss-making in 2024, the analyst said. The analyst, however, said a large portion of Tesla’s operating expense burden is non-auto, including AI infra.

Muted Expectations From Robotaxi Day: The Morgan Stanley analyst noted that the Robotaxi Day, scheduled for Oct. 10, would be held in Warner Brothers studios. There is likely to be a demonstration of the latest iteration of FSD and a
demonstration of a fully autonomous ‘cyber-cab,’ mostly in a closed/semi-closed course, he said.

Jonas noted that the California Department of Motor Vehicles’ website showed the company has a permit for autonomous vehicle testing ‘with a driver’ but does not currently hold a permit for autonomous vehicle testing or deployment without a driver.

In premarket trading on Friday, Tesla stock fell 0.84% to $228.24, according to Benzinga Pro data.

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