Tesla is seen having a huge advantage over EV peers through the Inflation Reduction Act
Spencer Platt
Morgan Stanley dug deep into the implications of the Inflation Reduction Act on the electric vehicle sector to conclude that investors may be underestimating the potential positive catalyst the legislation could be for Tesla (NASDAQ:TSLA) over the next few years.
Analyst Adam Jonas said Tesla (TSLA) has leveraged its vertically integrated business model, technological innovation, and manufacturing expertise to establish cost leadership and near industry-high margins. Currently, many investors believe the U.S. Inflation Reduction Act can help level the playing field or raise the tide for the broader electric vehicle industry as a whole from startups to legacy OEMS trying to go electric. However, Jonas and team think the IRA is so advantageous to Tesla (TSLA) in terms of absolute dollars and vs. legacy OEMs that it functions as an insurance policy that may be overlooked in the current share price. Jonas noted the relative scale and cost advantages for TSLA can represent gaps in operating margin that could be measured in thousands of basis points. The EV maker is seen using that advantage to lap up even more market share, instead of just boosting profitability.
IRA breakdown: "Since Tesla's battery production involves proprietary manufacturing of 4680 cells at Giga Austin, eventual ramp of 100GWh of production at Giga Nevada, and joint production with Panasonic via JV, we assume Tesla will retain 75% of the Advanced Manufacturing Production Tax Credit ($45/KWh for cells and packs as provisioned in Section 45X), while Panasonic will retain ~25%. We assume General Motors (GM) splits the tax credit 50%/50% with LGES, and Ford (F) 50%/50% with SK On."
Morgan Stanley has an Overweight rating on Tesla (TSLA) and price target of $200. The PT On Tesla is comprised of - (1) $88/share for core Tesla Auto business on 7.9M units in 2030 (2) Tesla Mobility at $9 on DCF with ~425k cars at $1.7/mile by 2030, (3) Tesla as a 3rd party supplier at $28/share, 4) Energy at $33/share, 5) Insurance at $8/share, and 6) Network Services at $33.
Shares of Tesla (TSLA) fell 2.08% in Tuesday afternoon trading to land at $168.20 vs. the 52-week trading range of $101.81 to $314.67.
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