Tesla gains on Morgan Stanley, Bank of America upgrades

Tesla shares finished in the green on Friday, extending its gains for the week, following two surprising upgrades. The first came from Morgan Stanley’s Adam Jonas, who raised his price target on the stock to $1,360 and boosted his rating to equal weight, on “increased conviction” in Tesla’s ability to unveil a suite of capabilities on its upcoming Battery Day. Similarly, Bank of America upgraded its investment rating from underperform to neutral and raised its price target from $800 to $1,750, as it thinks Tesla’s "growth" story will support the stock.

Video Transcript

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AKIKO FUJITA: Shares of Tesla up about 0.8% with just under an hour left to go in the trading day today. This, after getting an upgrade from Morgan Stanley. Analyst Adam Jonas upgrading the stock from underweight to equal weight, also raising the price target to $1,360 a share from $1,050, although that is still below the $1,632 mark seeing the stock trading at today. All of this, according to Morgan Stanley, on the potential of the company's battery technology and Tesla's potential ability to own the entire EV stock.

Seana, you know, Morgan Stanley just downgraded this stock last month, but we're now looking to the September 22 Battery Day. And there seems to be a lot riding on that, at least in this call, about where Tesla can go, beyond just their cars.

SEANA SMITH: Yeah, Akiko, I think you're exactly right. It's interesting that Adam Jonas kind of had this reversal of his call so quickly, but it's still not that bullish of a call. I mean, he has a hold rating on the stock. Its price right now is about 20% below where it's currently trading. So I think he's still a little bit questionable about Tesla's valuation.

But you're exactly right when you're talking about the battery business and that coming into play here. And I think that basically almost changed that thesis on the stock. We have the Battery Day coming up next month. It'll be in the middle of September. So we're going to get a little bit more information on that.

And that reminds me of the conversation that we both had earlier this week when we talked to-- he is the Tesla bull but he's also a shareholder, Gali Russell. And he was just talking about the importance of the battery business. When I was asking him about it, I feel like he almost jumped out of his seat before I was even done my question. But he-- that just really highlights, I think, the importance and the excitement that so many people who are close watchers of Tesla have about the company's battery business and the future of that and what that means for its valuation.

So I think maybe a big reason why Tesla is valued at where it is today has a little bit more than we initially thought-- at least than I initially thought-- that it has to do with its battery business. And I wonder if that's one of the reasons-- I think it is-- that the stock has climbed so much so quickly over the past several months.

And then real quick, just one more important thing-- I mean, Tesla, it seems like it-- it seems like it could almost do no wrong. The market cap of this company, $289 billion. And this is a company that has had a couple worrisome headlines over the past several months, yet investors able to shrug that off. And people who love Tesla are still seeing reason to buy the stock at over $1,600 a share.

DAN ROBERTS: And guys, it's interesting about the Morgan note here. It says that the stock is going to move based on two factors, neither of which is the business is selling cars. So as Seana mentioned, batteries and a lot of excitement around batteries-- maybe justified, maybe not-- but then also software and services.

Surprise, it sounds a lot like the story on Apple for a year. You know, while Apple was busy saying, iPhone sales declining, sending out warnings at the beginning of, I guess, 2019-- iPhone sales in China, alert. All the analysts who were so bullish pivoted to saying, well, over here, there's the software and services, and so we're still very bullish. Now, I feel like we got to start preparing to hear the services argument in support of Tesla.

Now, I also want to say, in some ways, the stock has moved a lot already for factors not related to selling cars. I mean, even in some quarters when, you know, Tesla in the past has been dinged for missing shipments, people say, well, you know, the stock's up anyway because everyone believes so much in Elon Musk. Of course, more recently, there has been a lot of success in meeting those shipments and being profitable in some quarters. But it is always a stock that has moved not based just on fundamentals, right? Not based on just financials. It's because of the story and the narrative.

And in the other note we're talking about today, the BofA note, there was a little line that along those lines stuck out to me, and it said that the stock is going to thanks to its continued growth story more than anything else. I just wrote today about AirBnb wanting to go public. And that's another example where, you know, the company's sales were down 70% last quarter, but it's going public anyway. Why? Because it's going to tell its story. It's going to convince the market with its narrative of we'll be back. Our business is strong. This is just a temporary roadblock. And the markets right now are very willing to just buy into a narrative about future runway.

MELODY HAHM: And Dan, touching upon that parallel you drew with Apple, I think another sort of facet there is when Apple announced that they were switching from Intel processors in Macs to their own, I think that's the same exact story you're seeing from this battery pack, right? To think that EVs, their biggest competitor is Tesla, but their best bet when it comes to finding the best battery for their vehicles would be Tesla, that is a really, really difficult position for any of these competitors-- whether it's the Benz, whether it's the Audis, Nikola-- for them to really be in this space.

And I think it's particularly fascinating because we have seen, whether it's the Rivians of the world, really trying to gear up, right? It's the Chinese Tesla. It's all of these upstarts that are trying to make headway here, in addition to the incumbent players. And I do feel as though the more they proliferate the space, the clearer the chasm is, the clearer it is that Tesla really is synonymous with electric vehicles, at least for the average consumer and for people who are trying to think about what their next car purchase will be right now.

I think, touching upon that bearish component of the BofA note, you know, they call it uninspiring that after 17 years in existence, Tesla is only now making about 500,000 cars a year and reaching just above or break-even profit and free cash flow, kind of summarizing, you know, Seana and Dan, your points of, you know, the threshold was so low because we had had such low expectation when it came to deliverables, when it came to actual eking out of profit that now I think analysts themselves are very confounded by just how much this stock has run based on pure exuberance alone.

AKIKO FUJITA: Yeah, and Melody, going back to Dan's point, the question really is going to be, come Battery Day, is it really just about the narrative, or is the company actually production ready? And I thought it was interesting in this note, Adam Jonas says based on the body of evidence collected and research, that they look at the third-party battery and the EV powertrains to supply business for Tesla. You break that out, the base case for them is that alone is worth $310 a share. So we'll be watching the announcement coming out on that next month.