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On Monday, Tesla (TSLA.O) shares surged nearly 6.3% following Morgan Stanley’s designation of the company as its “top pick” in the U.S. automotive industry. This notable shift came as the brokerage replaced Ford (F.N) with Tesla, citing significant future growth potential in Tesla’s energy business and a strategic advantage in the zero-emission vehicle credit market.
Key Insights from Morgan Stanley:
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Energy Business Potential: Morgan Stanley believes Tesla’s energy division could eventually surpass its automotive business in value. The firm anticipates increased investor interest in companies addressing climate change-related issues, enhancing Tesla’s growth prospects.
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Zero-Emission Vehicle Credit Revenue: The brokerage expects Tesla to dominate the zero-emission vehicle credit market, projecting the company may account for up to 50% of market credit sales. This shift could support a highly profitable segment for Tesla, potentially unnoticed by the broader investment community.
Current Challenges for Tesla:
- Profit Margins and Earnings: Despite the upbeat outlook, Tesla reported its lowest profit margin in over five years last week and fell short of Wall Street’s earnings expectations for the second quarter. The company has been discounting its vehicles significantly to boost demand amidst a challenging market environment.
- Autonomous Driving Technology: Morgan Stanley flagged concerns about Tesla’s ability to commercialize its autonomous driving technology, particularly in China. The technology faces regulatory scrutiny over safety concerns, impacting investor sentiment.
- Robotaxi Launch: Tesla’s anticipated robotaxi launch event, initially scheduled for August, has been postponed to October. The delay is attributed to the need for additional revisions to the vehicle.
Ford’s Performance:
- Stock Decline: Ford’s stock fell nearly 2% on Monday, adding to a 20% decline from the previous week. The automaker’s recent earnings report revealed a profit below estimates, highlighting struggles with quality-related costs and intense competition in the EV market.
Conclusion:
Tesla’s significant stock jump underscores the market’s optimism about its future growth, particularly in energy and zero-emission vehicle credits. However, ongoing challenges related to profitability and autonomous technology remain areas of concern. Meanwhile, Ford’s struggles reflect broader industry pressures, making Tesla’s ascent all the more notable. Investors will be closely watching Tesla’s upcoming developments and Ford’s efforts to address its current issues.
