Tesla’s ‘full self-driving business’ key to unlocking more extreme bull case scenarios, says Morgan Stanley

Morgan Stanley analyst Adam Jonas reiterated the firm’s equal-weight rating and $680 price target on shares of Tesla, on the premise that the electric automaker's autopilot/full self-driving business could be "key to unlocking more extreme bull case scenarios." The Final Round panel discusses the analyst's call, and the road ahead for Tesla.

Video Transcript

MYLES UDLAND: Welcome back to The Final Round Here on Yahoo Finance. Myles Udland with you in New York, and it's time now for our call of the day. Today, we are looking on a note from an old friend, Adam Jonas over at Morgan Stanley, his latest on shares of Tesla. And here, he is looking at what he's calling a software opportunity, and for Tesla, this always means what happens to these self-driving autopilot features that the company has in their cars.

So right now, there are some, you know, I think as most cars would, go fairly advanced self-driving features within Tesla's. But Seana, as we know, the case for Tesla from a number of folks, and I think Jonas isn't quite as bullish as, let's say, Kathy Wood. But the people out there who view Tesla as a several thousand dollar stock and changing the auto industry, they think the self-driving car capabilities will eventually just be like a SAS kind of license. And we all know how much investors love SAS plays these days.

SEANA SMITH: Oh yeah, and that's basically just focused in on the potential, the high margin of this. But it's interesting just in terms of the adoption rate, and I think that's key. And that's really the big risk here to Adam Jonas' entire argument, and Elon Musk mentioned this briefly on the last earnings call. And he was talking about the fact that Tesla does need to accelerate the adoption of full autonomy, and it has picked up a little bit in the US.

But when you look overseas, and specifically over in China, and that's been a region that Tesla has really focused on over the last several months, over the last couple of years. We haven't seen much traction there yet. There hasn't been as much demand for this full autonomy, this full self-driving. So I think that is one of the variables there, if we do see significant slowdown overseas, if we do see a significant slowdown in China.

That is a huge risk to Adam Jonas' really bullish call, because that then would not justify the current valuation that the stock is at right now. I know he as an equal weight on Tesla, but he is one of those bulls out there. And he is one of those people that has said that Tesla does have the potential to march much, much higher here, if all does go according to plan.

DAN ROBERTS: And guys, if I can chime in on the self-driving revolution, you know, yesterday, when we thought that the SpaceX launch was about to happen, which, of course, got delayed due to weather, we all did our roundtable on, would you jump on board one of these things? And I think we came to the agreement, Myles especially on the no side, but most of us saying, we're not quite there. I feel that way about the self-driving revolution too. Now, obviously, every company out in California and in Arizona, where all the testing happens, is all in on this thing.

But it's hard to believe that this gets as widespread, I guess, even in the next 10 years, or if I really wanted to be bearish, maybe even in our lifetime as people think. Now, yes, they're testing. Yes, there's money in it. Yes, people want in. And yet, because it's been, I think, already, you could say, slower to roll out and get to certain milestones than people in the industry rah rah rah said it would, you've already seen some places pullback.

I mean, look at Uber. We heard so much about Uber's self-driving tech fight, and Uber even went through a lot of legal turmoil and embroiled in some of that stuff in order to bet big on self-driving tech. But now, we're hearing and seeing more of a focus on the UberEats business. I mean, right now, of course, and you know, this time shall pass. This too shall pass, but when?

But right now, no one's even driving their cars much less getting into self-driving cars. So I know the tech is being developed, and if you want to make the bull case for Tesla based on that, fine. But I think there are better reasons right now to be a Tesla bull than the self-driving car technology.

MYLES UDLAND: Well, I mean, I think, look, in Jonas' view, it's like, is this an easy way to get customers to spend up to in his blue sky scenario 12 grand more on their Tesla to have this full self-driving package? And I think when you kind of run it through that sort of outlook, I think it's a lot more palatable. Because it's not really talking about how many more Tesla customers do you Need do people want to buy cars at all?

Can people still afford this level of car? Just saying to someone who wants to buy a Tesla actually value the self-driving technology that's in the car, and I don't know. Seana, to me, it's like, well, remember, Tesla was born in the financial crisis. I mean, they almost went out of business back during that period. Maybe there is something in the company's DNA that could allow it, and I know everyone's very skeptical about the stock story. We've talked of the death for like eight years here, but maybe they are well positioned to get through this because of things that have happened in the past.

SEANA SMITH: Well, I think they are, and I also think to the fact that this edge that they do have traditional automakers, obviously, does give them a clear advantage in this space. I think the fact that just $12,000 more when you take a look at what the typical Tesla purchase or the typical Tesla owner, they're not that price sensitive, right? They wouldn't be spending $60,000, $70,000 almost $80,000 for a vehicle, and then, if you're getting one of the SUV's, obviously, a lot more than that, if you were so price sensitive. So the fact that it has this cool factor, it has this lure.

I mean, they're extremely popular, especially out on the west coast. You don't see as many of them around New York City or on the east coast. But they are picking up in popularity. I think this self-driving feature, while it may not be a game changer right now, it's not going to be something that, obviously, is deployed and we can use it at this point.

But if you look into the future, it certainly does seem like we are moving that way. It seems like people are open to the fact that this could be a possibility. And while it, obviously, is the safety concern, at least in the near term, it could be something that in turn-- it's what they tell us. It's a lot safer than actually having humans in the driver's seat.

MYLES UDLAND: And just for fun, Seana, you know, when you say, it's not yet a game changer right now, but we're betting on the future. I mean, where in it, what point what would it take would you get into it, an autonomous vehicle as a passenger?

SEANA SMITH: Myself? If you were going 20 miles an hour or 25 miles an hour and we were in a residential neighborhood--

DAN ROBERTS: 20 is fast.

SEANA SMITH: I think I would be willing to do it. Anything over that, no, you guys can count me out. I'll let somebody else do a few test drives first.

MYLES UDLAND: So any actual driving, you don't want to be doing in a self-driving car?

SEANA SMITH: No, no, not right now.

MYLES UDLAND: OK, maybe like a small-- it's like, you want to go--

SEANA SMITH: Guys, I'm a mom now. I can't be taking those types of risks.

MYLES UDLAND: I was just going to say, like would you put your kid in the car? I guess you basically answered that question.

SEANA SMITH: No never.