- Morgan Stanley lifted its price target for Tesla to $880 from $810 on estimates for stronger growth.
- The automaker will expand as it forms new synergies between its autos and services businesses, the bank said.
- Tesla rose as much as 4.8% on Tuesday and even brushed past the new target at intraday highs.
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Synergies across businesses will drive Tesla stock to new highs in 2021, Morgan Stanley analysts said.
The team led by Adam Jonas lifted their price target to $880 from $810, implying a 4.8% jump from Monday's closing level. The electric-vehicle company can leverage its cost leadership to aggressively expand its client base, and loftier targets in 2021 suggest Tesla is working to more efficiently connect its business.
Morgan Stanley views Tesla as having a "double flywheel," with elements of its autos and services businesses enjoying rapid growth cycles. CEO Elon Musks comments in a quarterly report signal new connections between the two segments will help Tesla rapidly expand its vehicle capacity and lift profit margins, according to the bank.
"We believe Tesla can leverage its cost leadership in EVs to aggressively expand its user base, over time generating a higher percentage of revenue from recurring and high-margin services revenue," the analysts said.
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About $14 of the bank's $70 price-target boost was derived from an improved outlook on long-term car deliveries. Nearly half of the boost came from stronger forecasted growth in Tesla's energy business. A larger installed base and its effect on network services also informed the loftier target.
The bank maintains an "overweight" rating on Tesla shares and considers the company a "core EV portfolio holding." Tesla gained as much as 4.8% in Tuesday trading, even exceeding Morgan Stanley's new price target at intraday highs.
The analysts expect Tesla to deliver 785,000 vehicles in 2021, down from its previous forecast of 792,000. To be sure, the sum still stands well above the nearly 500,000 cars delivered in 2020. Deliveries are projected to reach 5.38 million in 2030, according to the bank, up from the previous estimate of 5.23 million.
Free cash flow is now expected to reach $6 billion in 2021, nearly twice the $3.8 billion previously expected by Morgan Stanley. The new projection assumes a refresh to Tesla's working capital after a pattern of negative trade.
Tesla closed at $872.79 on Tuesday, up 26% year-to-date.