The Tesla Advantage: Batteries, Talent and More

Tesla (NASDAQ: TSLA) stock hiked 11.20 percent in Monday’s trading, and Morgan Stanley’s Adam Jonas clarified why the potential benefit of the business lies inside batteries and talented people who want to work for Elon Musk.

Jonas appeared Monday on an episode of CNBC’s “Squawk Alley” to address his price target for the electric car maker, which he had increased from $1,050 last week to $1,360.

According to Jonas, the future Tesla has potential to be “a large, if not dominant,” third-party battery supplier to other car businesses. Morgan Stanley, with the aid of technology colleagues in Asia, estimated that the company’s future battery supply market is worth approximately $310 a share, which led to a majority of last week’s $350 price target increase.

Yet what lies behind the production of battery cells is who can manufacture them, and that’s where Jonas says Musk has the greatest advantage in the race to become a major supplier of batteries.

“The battery is not mature. This is an arms race. It is an arms race for talent,” Jonas said. “And, amongst all of Elon’s benefits that he has right now, the one that is probably the most valuable and the one that is on display here folks, is that the best people in the world want to work for Elon.”

The world’s best people want to work for Musk but being a battery manufacturer is not the only opportunity. Jonas noted that the most creative minds in the world are finding jobs in all of Elon’s projects.

“The best people in batteries, chemistries, software, rockets, you name it, they don’t want to work for some conglomerate in a traditional 1970’s oriented, little bit by bit evolutionary. They want to put their skills to work to just go completely and take it up a notch,” added Jonas. He then suggested that there was value in that, and Morgan Stanley said that this assumption would coincide with the added value in the price plan.

Nonetheless, the company’s price target for Jonas and Morgan Stanley is still more than 20 percent below where TSLA stock traded during Monday’s session.

“I didn’t have a chance to ask the question in the last Earnings Call, but even Elon, back in May, said he thought his stock was overvalued in his opinion,” Jonas said.

“I can only boil it down for my clients and my colleagues to fundamentals and assumptions. Here’s how I think about it: Each one million units of third-party battery supply is worth maybe $120 a share to Tesla. We gave them about two and a half million units by 2030, so that was about $310. If you wanted to get to $2,000, let’s say, just solving for batteries alone, we think you’d have to get closer to ten million units of batteries in addition to the three or four or five or ten million that people were giving them credit for in their own business,” he added.

Jonas believes that if an analyst were to do that, by 2030 Tesla would receive 100% or at least a large portion of the battery market share for EVs, which does not seem to be realistic. Instead, the price the company is currently trading has to do with another factor that is uncounted. He thinks it might be autonomy, or something unorthodox, like a SpaceX partnership, but sticks to his current price point of $1,360 with a “Equal-Weight” ranking.

TSLA stock closed on Monday, at $1,835.64. Today, it is trading $1,908.63 at the time of this post.

Reported by Teslarati.

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