Morgan Stanley Remains Bullish on Tesla (TSLA)

Image: Tesla

Morgan Stanley maintains a bullish outlook on Tesla amid news of the company's expansion of production capacity. The firm believes the manufacturer will continue to strengthen its advantage in the field. Morgan Stanley has reaffirmed its $220 price target for Tesla.

Morgan Stanley on Monday issued two Tesla notes evaluating the manufacturer’s strategic investments in Mexico and China. Analyst Adam Jonas wrote that Tesla's latest investment in Nuevo León, Mexico, marks a strategic move to diversify the supply chain, capitalize on proximity to the domestic market, and gain access to cheap labor and a supplier network, according to Benzinga. Recent visits to the region have revealed potential tailwinds for Tesla in the areas of labor, capital, and infrastructure, but political risks remain, the analyst said.

Jonas wrote that the Nuevo León region is very familiar with the car supply chain, with over 100 car suppliers already operating there. This means the need for retraining of the workforce will be minimal, which is a big positive for Tesla. The quality of human capital in Mexico is also impressive. It graduates 120,000 engineering students annually, the analyst wrote. Nuevo León offers significantly lower labor costs compared to the US and China, which adds to Tesla's competitive advantage in manufacturing costs.

According to Morgan Stanley, a new low-cost Tesla model, which was mentioned at the Investor Day in March, may appear on the horizon. The analyst believes that Tesla's innovative approach to vehicle manufacturing, combined with Mexico's strategic advantages, contributes to the long-awaited price of a new car of $25,000.

In addition, Jonas said that in China, Tesla's planned 40 GWh Megapack factory could signal an oversupply of battery cells and strategic hedging between the US and China. In his opinion, since the supply of cells exceeds the demand for electric vehicles, Tesla could potentially implement a two-pronged supply chain, building a fully independent battery “industrial complex” in both regions. Through scale, cost, and technical advantages, Tesla aims to expand rapidly and establish cost leadership.

The analyst believes Elon Musk is aware of the risk of excessive price deflation in the industry and potential margin erosion, but the company's aggressive expansion underscores Tesla's commitment to maintaining a competitive edge.

© 2023, Eva Fox | Tesmanian. All rights reserved.

_____________________________

We appreciate your readership! Please share your thoughts in the comment section below.

Follow @EvaFoxU

Legal Disclaimer --

This article is for informational purposes only. You should not construe any such information or other material as an investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Eva Fox, Tesmanian, or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Eva Fox holds zero shares of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.