Tesla Robotaxi Valued At $123/Share By Morgan Stanley Equalling ~4x of Uber’s Current Share Price

Oct 16, 2020 11:54 EDT
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Investment bank Morgan Stanley has expressed its optimism about electric vehicle and renewable energy products manufacturer Tesla Inc's (NASDAQ:TSLA) plans to introduce a ride-sharing platform with its vehicles. Dubbed as 'Robotaxi', this service has been on Tesla's agenda for a while now, and it's garnering renewed attention from Wall Street as the company manages to smooth out early-stage production issues in China and the United States.

Tesla's Robotaxi Will Benefit From Price Reduction and Other Systemic Improvements In EV Sector Believes Morgan Stanley

The bank's research note that came out earlier today shares a detailed set of assumptions that its analyst Adam Jones has made about the Tesla Robotaxi. This note mentions Robotaxi as Tesla's 'Mobility Fleet' and states that Morgan Stanley expects the company to launch one thousand cars from its existing fleet in Tesla Mobility by the end of next year.

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More importantly, Jones believes that the company is better suited to launch Tesla Mobility now than it was in the past. In his opinion, this is due to structural changes in the electric vehicle market, which we believe have materialized due to manufacturers gaining more market as time passes, and Tesla's production scaling in its Shanghai, China Gigafactory.

These changes include battery and car price reductions, growth in charging infrastructure and improved resale value amongst others. The improvements have impacted Morgan Stanley's valuation framework for Tesla Mobility, and as a result, the bank is now more optimistic about the service's future.

Subsequently, Jones now expects that not only will Tesla Mobility launch next year but that it will also manage to grow significantly in the ten years that follow. Quoting the analyst:

"We forecast a launch of 1,000 cars (from the existing fleet) in Tesla Mobility by 2021, rising to 500k cars by 2030, which would account for 2.7% of our Tesla global fleet estimate (18.6mm units) by that year. Our previous assumption for the Tesla Mobility fleet was 240k units by 2030. We assume $45,000 per cost car (vs. $60k previously) and a 7-year useful life, and other savings, driving our exit OP margin of Tesla mobility to 14.7% (10.4% previously). We use a 10% WACC (11% previously) and a 4% terminal growth rate (2% previously) implying an exit PE multiple of 17.3x (11.3x previously). Taken together, our valuation of Tesla Mobility rises to $42bn ($41/share) vs. $7.3bn ($7/share) previously."

Tesla chief Elon Musk explaining the company's plans for its Robotaxi Transportation-as-a-Service (TaaS) solution last year. Image: Tesla

In addition to providing the bank's opinions about Robotaxi, Jones also lays down three price target scenarios for Tesla shares. These scenarios, as is the custom, lay down best, worst and base case estimates. They outline that Morgan Stanley's Bullish (or best) case scenario for Tesla pegs the company's price target at $716/share; its Bearish (or worse) scenario lays out a $108/share price target; and its base case scenario comes with a $333/share price target. Based on the company's opening share price of $454.44/share today, only the Bullish scenario factors in upside for $TSLA.

This scenario assumes that Tesla will end up delivering eight million vehicles by the end of 2030, which in turn leads to a value of $462/share. It then assumes that Tesla Mobility will be valued at $123/share, Tesla Energy at $8/share and the company's sales of EV powertrains to other companies at $124/share. The powertrain value factors in 5 million unit sales in 2030 with a 20% EBITDA margin. EBITDA margin refers to how much the company earns after operating and the cost of goods sold has been removed from revenues and before it removes non-product expenses from the remainder.

It's important to note that Morgan Stanley's Tesla Mobility valuation sits above what California-based Uber Technologies, Inc (NYSE:UBER) is currently trading for in the open market. As of today, Tesla has roughly 932 million shares outstanding while Uber has roughly 1.75 billion shares. The bank's base-case scenario values Tesla's automobile business at $231/share, its Mobility business at $41/share (roughly in line with Uber's current share price) and its powertrain supplies at $62/share.

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