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Tesla (Finally) Gets a Ratings Upgrade From Morgan Stanley

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It took more than three years, but Tesla (TSLA) - Get Report finally has won the favor of Morgan Stanley's equity research team.

After being a staunch Wall Street holdout, Morgan Stanley analyst Adam Jones on Wednesday raised Tesla to overweight from equal weight, predicting the electric carmaker is on the verge of a “profound model shift” from selling cars to generating high-margin software and services revenue.

Jones also raised his one-year price target by 50% to $540 from $360.

To better gauge Tesla’s future earnings potential, Jones said his team is now including software/connected vehicle services revenue in their earnings and valuation forecasts. With the total number of Tesla’s out in the world expected to reach 2.1 million next year, “a more in-depth understanding of the revenue streams derived from each car is warranted right now,” Jones wrote.

Morgan Stanley’s Tesla U-turn follows Standard & Poor’s announcement Tuesday that the electric carmaker will join the S&P 500 on Dec. 21, a move that had been anticipated for months as Tesla has surprised Wall Street with better-than-expected earnings and sales, which in turn has driven its valuation to new heights.

Tesla will be one of the most valuable companies in the S&P 500 once it's included.

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