Morgan Stanley Releases Tesla Note - MOACC: 5 Thoughts on the Mother of All Capex Cycles

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Tesla's goal is to help the world move from a mine-and-burn hydrocarbon economy towards a renewable electric economy. To do this, the company develops and manufactures a range of products from vehicles to energy storage systems. Morgan Stanley analyst Adam Jonas talks about Tesla's (NASDAQ: TSLA) important role in this process in a new note, MOACC: 5 Thoughts on the Mother of All Capex Cycles.

Morgan Stanley believes that the next 12 months will show investors how vital Tesla and the automotive industry as a whole are in the transition from a fossil fuel economy to a renewable energy economy. Jonas hopes that, in following Tesla's lead, many other automotive companies will play a critical role in restructuring the renewable energy/transportation industry. "The global renewable energy/battery capex cycle is where the real alpha is, in our opinion," the analyst wrote.

1. Tesla is overvalued. Tesla is undervalued. At the same time. According to Morgan Stanley, Tesla is overvalued as a pure car company (solving for just unit x price of cars). However, the company may be substantially undervalued as a renewable energy on-shore infrastructure company. See Tesla as the ultimate battery capex play, writes Jonas.

2. War + inflation = energy innovation. Morgan Stanley believes events over the past 2 months and catalysts over the next 6 months can materially shift the narrative around what Tesla does, the markets they address, the growth profile, and the global/strategic implications of the ecosystem on which they sit atop.

3. Investors are starting to appreciate the advantages Tesla has in going direct to the consumer while legacy OEMs are prohibited from doing so by powerful state dealer franchise laws. This Tesla 'loophole' which new EV startups can also take advantage of is creating 2 classes of auto companies. Data from March US auto sales continue to show the 2-SAARs at work with EV/DTC sales up over 100% while legacy/franchise SAAR fell by >25%.

4. The bigger forces driving the multi-deca-trillion-$ battery capex cycle. As globalization evolves into a new era featuring heightened concerns around national security, investors must contemplate the new energy supply chain and supporting infrastructure, Jonas wrote. While batteries and storage seem an important part of the solution, the supply chain to mine/refine/deliver the necessary metals from the earth's crust to the hundreds of battery factories that need to be built may arguably be less secure than the fossil-fuel ecosystem.

5. "Yeah but can you make batteries?" Jonas wrote that when he meets new people in the course of doing business or even on the street, he feels an urge to ask them: "Yeah but can you make batteries?" We need batteries and at a very high scale, he points out. Where do we need them? Everywhere energy is generated. Everywhere energy is consumed. Everywhere things move. How much battery capacity is needed? This is a topic that deserves further analysis, but Morgan Stanley estimates the order of magnitude of battery capacity required to move 100% of the global light vehicle fleet to electric + grid-level/distributed stationary storage may be in the 20 to 190 TWh range depending on a host of policies, technologies, and other factors. At a capacity cost of roughly $80mm per GWh of capacity, the capex required for battery manufacturing alone could be in the $1.5 to $3tn range. That's just the battery factories. Add in the upstream mining/refining, downstream grid upgrades, renewable energy supply, charging infrastructure, and related automobile manufacturing plants, recycling, service, and support and we're talking figures potentially on the order of $10 trillion to $20 trillion or more over a 20 year period, writes the analyst.

H/T @SawyerMerritt/Twitter

© 2022, Eva Fox | Tesmanian. All rights reserved.

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