Morgan Stanley (NYSE: MS) is going all-in on Tesla (NASDAQ: TSLA). The firm raised its rating on the stock to Overweight from Equal Weight and set a new price target. The new target is $400 and the new high-price target among analysts. It is a 60% increase from Morgan Stanley’s previous target and 60% above the recent price action, so why?
The reason is Tesla’s position in the AI market. Analyst Adam Jonas calls the company’s Dojo supercomputer a $500 billion wild card and likens it to Amazon's (NASDAQ: AMZN) opportunity with AWS. In his view, the company’s future includes software and services, fixed-price car sales, and power delivery.
What is Dojo? Dojo is Elon Musk’s answer to the tight supply of Nvidia (NASDAQ: NVDA) GPU superclusters. To paraphrase, the company says it can’t get enough of them to train their cars, so they made their own system. Dojo is a computer-vision-focused AI supercomputer that aggregates imagery from Tesla vehicles. Dojo uses the data to train the company’s machine-learning models for full self-driving vehicles.
Like most of Musk does, the Dojo architecture is unlike what others are doing and may lead to the next significant advance in AI technology.
The Analysts Signal a Bottom For Tesla
The analysts' activity in Tesla has been mixed this year but now shows a turning point for the market. The consensus price target and rating are down compared to last year, but the price target, at least, is trending higher versus last month and last quarter, and the Morgan Stanley upgrade is a step in the right direction.
The Morgan Stanley upgrade is the 1st since June and is offset by 3 downgrades in the same period, but even those aren’t as bearish as they could be. Two of the 3 downgrades are still Holding and see the stock fairly valued near $260. Aside from that, Tesla stock has seen a series of price target increases that have it trading well above the current consensus.
Recent data from China may lead analysts to continue raising their price targets this year. China’s Passenger Car Association said that August sales hit a record for the month and were led by EVs and hybrids. As increasing competition cuts into growth, EV and hybrid sales grew by 35%, and Tesla sales by 31% compared to the prior month.
The takeaway is that the analysts, as robust as the targets for Q3 are, may be underestimating TSLA growth. They expect revenue to be flat compared to the prior quarter, which the data from China contradicts. Assuming the company posts similarly strong results in other markets, Q3 revenue should grow sequentially, even with the recent cuts in pricing.
An Opportunity in the Wings For Tesla
The looming autoworkers strike is a potential catalyst for Tesla and its share prices. Tesla is the only major OEM not represented by the unions and stands to gain ground against its competitors. Analyst Dan Ives of Wedbush views the strike as the worst in 50 years and 1 that could set back plans for the Big 3 automakers' EV transition.
Along with the prospect of losing time and pushing the timeline for EV production ramps into 2024, the strike could eliminate any pricing advantages the Big 3 automakers have. Not only does the UAW want more pay, but it also wants shorter work weeks and other high-cost concessions that will cut into automakers' profits. Meanwhile, Tesla will continue to ramp production at its Gigafactories.
Tesla's stock price shot up more than 6.0% on the Morgan Stanley upgrade, and it may move higher. The advance shows support at the long-term 150-day EMA, a critical support level. Assuming the market follows through on this signal, the next target for resistance is near $280. A move above there would be bullish and open the door to a move up to $300. Beyond that, it will come down to the next earnings report. Tesla is slated to report in mid-October, and the bar is low.