As the Full Self-Driving beta continues to roll out to more Tesla owners, the appeal of the EV automaker as a tech stock seems to be becoming more visible to Wall Street. Morgan Stanley’s Adam Jonas reported in a research note published last week that Tesla seemed to be pursuing the playbook of Apple and becoming a software-based service provider in the future.
Jonas clarified that Tim Cook, CEO of Apple, made his mark in the market by increasing the revenues of the tech giant through software-based services. The Morgan Stanley analyst predicts that in the future, Tesla will take a similar course.
“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 wrote in his November 18 note.
Jonas elaborated on his theory, adding: “Services transformed the narrative on Apple from a stock that used to be perceived as a cyclical hardware stock fully valued at 15x earnings to one where target multiples increasingly approach 30x+ today.”
“It is becoming clearer that, like many other technology firms, Tesla is using its growing fleet of hardware in services to ‘turn on’ new revenue opportunities…services that are far-reaching, high-margin, regularly recurring, and services that ultimately improve the user experience and stickiness of the platform,” the Morgan Stanley research note said.
Jonas’ fresh perspective of Tesla working like a tech giant would not surprise long-time Tesla bulls. For a while, TSLA bulls have argued that the company should not be viewed as a car manufacturer alone, especially given its Tesla Energy division or the fact that the company produces its own chips and develops software such as Full Self-Driving (FSD).
For instance, Business Insider calculated that the $10,000 price tag of the FSD was about 20 percent of the cost of the Model 3 Long Range. Morgan Stanley calculated that if customers added FSD to their Model 3 LR purchase, Tesla could gain almost a 100 percent profit margin.
TSLA’s upcoming inclusion in the S&P 500 index and its $544 billion market cap make more sense as it is considered a tech firm. It also explains Tesla’s loyal ownership community. Offering an array of services, as it does for Apple, will draw new users to Tesla. It could also establish brand loyalty, which explains why it is difficult for Apple users to leave the company’s ecosystem.
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