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Tesla’s Evolution Towards Software: A New Outlook for Investors


Tesla, known for revolutionizing the car industry with its attractive electric vehicles (EVs), is now shifting its focus towards software. This strategic move is expected to drive future stock gains, with less emphasis on EVs themselves.

Morgan Stanley analyst, Adam Jonas, highlights the importance of Tesla adopting a more capital-light model and distancing itself from the traditional auto business. By following in the footsteps of Apple, Tesla aims to become a powerhouse in the software realm rather than just an automaker.

Apple disrupted multiple industries with its groundbreaking hardware creations like the Mac, iPod, iPhone, and iPad. However, it was their introduction of the App Store that truly propelled them forward into software and services. Similarly, while Tesla has already achieved its “iPhone moment” with its innovative hardware, it has yet to experience its own “App Store moment” which is crucial in maximizing profits and valuation.

Currently, Tesla’s most crucial “app” is its driver assistance software, available for a monthly fee of just $199. While this software assists drivers in navigation, the ultimate goal is to transform it into fully self-driving software, unlocking the potential for a robust robotaxi business. The anticipation is that this advancement will not only increase demand for the product but also allow Tesla to license its software to other automotive manufacturers, creating a supply business within the traditional assembly model.

By focusing on software, Tesla aims to enjoy higher profit margins and recurring revenues. This shift will position Tesla as a key player in the future of transportation, going beyond EVs and redefining the boundaries of the automotive industry.

Investors who recognize this transformative potential stand to benefit greatly as Tesla steers towards a software-driven future.

Tesla’s potential as a self-driving software supplier has captured the attention of experts in the field. RBC analyst Tom Narayan has joined the ranks of those who believe that this evolution is where Tesla’s true growth lies, while still maintaining its position as a major car manufacturer.

Both Narayan and another prominent analyst, Morgan Stanley’s Jonas, are optimistic about Tesla’s future and recommend buying the stock. Narayan has set a price target of $301, while Jonas has an even higher target of $380, valuing Tesla at a staggering $1.2 trillion.

Taking a closer look at Jonas’ assessment, he estimates that the value of Tesla’s car business alone is around $270 billion, comparable to that of Toyota Motor (TM). Furthermore, he attributes an additional $740 billion to Tesla’s supply, software, and services divisions. It’s important to note that Tesla also has a battery storage business and offers insurance services.

Jonas’ bullish outlook on Tesla sets him apart from other analysts on Wall Street. The average price target for Tesla stock is around $242, according to FactSet, highlighting Jonas’ optimistic stance. However, it is worth noting that only 44% of analysts have a Buy rating on Tesla, compared to an average of 55% for S&P 500 stocks.

While Jonas remains positive on Tesla’s prospects, he acknowledges some concerns. In his note, he emphasizes the need for Tesla to meet earnings estimates consistently and expand its vehicle lineup beyond the current models: The S, X, 3, and Y.

As the market opens, Tesla stock experienced a slight decline of 0.4% in premarket trading. Meanwhile, S&P 500 and Nasdaq Composite futures also saw a marginal decrease of approximately 0.3%.

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