Tesla stock gains after Morgan Stanley upgrade

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Shares of Tesla Inc. are up 0.9% in morning trading Wednesday after Morgan Stanley analyst Adam Jonas upgraded the stock to overweight from equal weight. He also raised his price target to $540 from $360. Jonas wrote that Tesla is “on the verge of a profound model shift from selling cars (volume x price) to generating high-margin, recurring software and services revenue.” He argued that the company’s car business provides an “entry ticket into unlocking much larger [total addressable markets].” The company already gets some services revenue from things like premium infotainment and performance upgrades, and Jonas estimates that these businesses account for about 1% to 2% of Tesla’s revenue today. By 2030, services could account for over 6% of revenue and 18% to 20% of earnings before interest, taxes, depreciation, and amortization, he said. “To only value Tesla on car sales alone ignores the multiple businesses embedded within the company, and ignores the long-term value creation arising from monetizing Tesla’s core strengths, driven by best-in-class software and ancillary services,” Jonas wrote. He argued that the company benefits from a “double flywheel” due to its market-leading position in electric vehicles, which allows Tesla to “lead the industry in price cuts for its products” while also looking to turn vehicle owners into “subscribers” to Tesla services. Shares of Tesla have gained 18% over the past three months as the S&P 500 has risen 6.5%.
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