Morgan Stanley Says Electric Cars Set to Surge, Tesla Stock Surges Too

By · March 31, 2011

Citing skyrocketing oil prices and new government policies, investment banking powerhouse Morgan Stanley has released a 50-page manifesto in which company analyst Adam Jonas writes, "conditions are ripe for a shake-up of a complacent, century-old industry," and that Tesla will turn the Big Three into the Big Four American automakers.

Saying electric cars will make up 5.5% of global car sales—7% in the U.S.—Morgan Stanley predicts a major shift away from the internal combustion engine in the next decade and says Tesla is set to benefit greatly. As a result Morgan Stanley upgraded Tesla's stock valuation and set a target price of $70 per share. Up until now Tesla stock had been trading around $23 per share. On the news, Tesla's stock surged to more than $28 per share.

Jonas also writes that Tesla has proven themselves to be a top flight company capable of capturing modest market share in the face of great odds, saying that in the future Tesla will garner at least 7.3% of the 5.5% global electric car market in 2020.

To Jonas that means Tesla will be selling 240,000 cars per year in 2020, for annual sales of $9.5 billion and a net income of nearly $1 billion. Jonas predicts that of those 240,000 cars, 62% will be from a next generation more affordable vehicle, 17% will be of the forthcoming Model X SUV, 9% will be from the Model S luxury sedan and less than 1% will be of the Roadster. Morgan Stanley also predicts that 11% of Tesla's sales will be from the supply of third-party power trains—such as in the Toyota-Tesla tie-up and next generation RAV4 EV.

Morgan Stanley's picture wasn't all roses, however, saying that Tesla will have a tough time in the next 2 years, especially in 2013 when it will be burning through cash at a gargantuan rate trying to get new products out the door and they will have to manage cash flow well to get through that rough time.

Sources: Barron's, Reuters

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