Tesla Shares Extend Gains After Morgan Stanley Upgrade Linked To Battery Business

Tesla's developing battery business, recently touted by founder and CEO Elon Musk, could be a key driver for future earnings growth, Morgan Stanley analyst Adam Jonas argues.
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Tesla Inc.  (TSLA) - Get Report shares extended gains Friday after analysts at Morgan Stanley boosted their rating and price target for the clean energy car company based on the potential of its battery business. 

Morgan Stanley analyst Adam Jonas cited the potential for a buildout of the group's battery business, which founder and CEO Elon Musk touted late last month, as a key driver for the group's medium term earnings. He also noted that Tesla's future gains could be more influenced by factors beyond the sale and delivery of vehicles, which has traditionally powered both the top and bottom line of the world's most valuable carmaker.

Jonas boosted his price target on Tesla by $310.00, to $1,060.00 per share, and improved his rating on the stock to 'equal-weight' from 'underweight' in a note published late Thursday. 

"Based on the body of evidence collected and research conducted by our tech colleagues, we now give Tesla credit for a third party battery/EV powertrain supply business in our base case (previously in our bull case scenario) that is worth $310 per share," Jonas argued

Tesla shares were marked 2.5% higher in early trading following the upgrade to change hands at  $1,662.30 per share, a move that would peg the stock's six-month gain at around 108% with a market value of around $308.4 billion.

Tesla shares have gained more than 20%, in fact, since the group unveiled plans for a five-for-one stock split on August 11 that would make its equity more accessible to investors as it prepares to enter the S&P 500 benchmark.

The split follows similar plans from Apple Inc.  (AAPL) - Get Report, unveiled late last month, and comes ahead of what many analysts expect will be Tesla's inclusion in the S&P 500 later this fall. Tesla became eligible for the benchmark after it posted its fourth consecutive quarterly profit last month.

Credit Suisse analysts suggest the S&P 500 inclusion could trigger even more activity in Tesla stock, with 'significant' incremental buying of around 18 million shares -- some 10% of its outstanding total -- from passive investors and fund managers that track the benchmark index.