Morgan Stanley questions how competition can keep up with Tesla; Reiterates Outperform

By Michael Elkins

Morgan Stanley reiterated an Outperform rating and $220.00 price target on Tesla (NASDAQ:) following the electric vehicle maker’s 2023 investor day.

The company revealed their “master plan 3” with vertical integration and new technologies to support CEO Elon Musk’s dream of creating a sustainable energy economy. However, vertical integration efforts only pay off if you manufacture at an extraordinarily high scale (1mn-2mn units per model, >1mm units per factory).

Analysts wrote in a note, “The word ‘petawatt’ has now entered the automotive lexicon. We believe consumers will one day look back at EVs from 2023 the way we look back at cellular phones from the 1980s (remember Gordon Gekko’s phone when he was on the beach ‘out East’ in the Movie Wall Street?) Tesla wants to be the largest manufacturer in the world by some margin. With that ambition, achieving cost leadership is deterministic.”

“We leave the investor day at Giga Austin asking which of Tesla’s competitors can keep up with the planned spending,” the analysts continued. “We expect to see most, if not all, of today’s legacy auto company executive teams study the materials presented today and to tour the Giga Austin plant as they have toured the Tesla Fremont facility in years past. Over time, we would expect the forthcoming innovations brought to market by Tesla become the industry standard, ultimately used by all automakers.”

While the company didn’t release any formal targets regarding company financials, TSLA did lay out the path it has been on, and where it hopes to get to over the coming years. TSLA aims to take costs out across multiple fronts; the vehicle, the battery and powertrain, and manufacturing, tying together all the innovations on display over the course of the presentation.

“Should TSLA be able to hit the cost targets laid out today, when coupled with its opex discipline, we find it hard to see a way in which legacy automakers could compete with TSLA in terms of EV profitability.” — Morgan Stanley.

Shares of TSLA are up 1.81% in premarket trading on Friday.