Morgan Stanley analysts increased their price target for Tesla (TSLA - Get Report) to $317 from $305 with a bull case of $526, up from $511, after the electric car-maker reported strong second quarter earnings bolstered by positive outlook for the Model 3 roll-out and improving revenue.
The Model 3 is now in a pole position, analysts wrote. With more Model 3 units delivered in the third quarter than initially expected, Tesla is on track to deliver 106,552 vehicles this year instead of Morgan Stanley's original estimate of 96,219. Analysts also see the Model 3 average price down to $50,000 from $60,000. Though this could temper revenue, it is likely good for Model 3 demand in the long run.
Given increased revenue growth and gross margin improvement in the energy and storage business, Tesla is on pace for a 19% full-year revenue jump, Morgan Stanley wrote. Gross margins are likely to increase to 5% in 2018 and 6% in 2019 versus 2% and 4%, respectively.
Tesla's capital expenditure is approaching $2 billion for the second half of 2017, analysts wrote, up from the previous expectation of $1 billion. That puts the company on track to reach the same level of spending as OEMs such as Honda (HMC - Get Report) and Nissan (NSANY) and at about half the capex spending of automakers General Motors (GM - Get Report) and Ford (F - Get Report) .
Morgan Stanley noted that Tesla's real competitors, though, are not automakers or OEMs, but rather tech companies including Alphabet's (GOOGL - Get Report) Waymo and firms with AI exposure such as NVIDIA (NVDA - Get Report) . These players represent potential competition for investors, as they focus on expanding in markets "directly addressed" by Tesla, analysts said.
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