Morgan Stanley Increases Valuation of Tesla Energy Thanks to the AI Boom - Will the Energy Segment Soon Overtake the Automotive Division?

Morgan Stanley has raised the valuation of Tesla's energy storage business and expects a global surge in demand driven by the boom in artificial intelligence. Tesla will be able to significantly increase its market share in this segment. The brokerage firm raised the value of the energy division to $50 per share of its $310 price target, up from its previous estimate of $36 per share, while lowering its forecast for Tesla's 2030 car sales.

Morgan Stanley estimates that the profit from a fully utilized mega-factory producing large storage batteries is equivalent to the profit from the sale of one million Tesla vehicles. "It's no wonder investors are starting to consider the possibility that Tesla Energy could be worth more than Tesla Auto," said Morgan Stanley analyst Adam Jonas. At the same time, Jonas lowered his valuation of the Tesla Auto segment by $15 to $56 per share, as he sees reduced electric vehicle penetration through 2030 and a "continued slowdown in EV demand due to Chinese protectionism and a hybrid renaissance."

The analyst also predicts that Tesla Energy's margins will exceed those of the automotive segment in 2024 and that Tesla Energy can generate earnings per share of $2.00 by 2030.

Goldman Sachs separately raised its price target on Tesla to $248 from $175, but maintained a Neutral rating. The company also raised its 2024 earnings estimate due to higher deliveries. At the same time, Jonas lowered his valuation of the Tesla car segment by $15 to $56 per share. He sees reduced penetration of electric vehicles through 2030 and a "continued slowdown in EV demand due to Chinese protectionism and a hybrid renaissance."

Tesla shares have risen nearly 44% in the last ten sessions, the longest run-up in more than a year. Daily trading volume for Tesla shares surpassed AI darling NVIDIA for the First time in six months last week, according to data from LSEG.

Oppenheimer said in a note Tuesday that Tesla's energy storage revenue could top $3 billion in the current quarter, but added that "the value of the fully self-driving AI platform is key to whether shares will continue to rise or weaken again." In April, CEO Elon Musk said Tesla is likely to launch fully self-driving software this year, which could bring significant profit.

Tesla reported last week that it deployed 9.4 gigawatt-hours of energy storage products in Q2 2024, more than double the January-March period. The company's products include the Powerwall electricity storage system for home use and the Megapack for large commercial projects and utilities. According to LSEG data, energy storage and generation accounted for 6% of Tesla's 2023 revenue, with the remainder coming from the automotive segment.

Morgan Stanley now predicts that Tesla's energy business will reach 100 GWh of storage capacity by 2028, three years earlier than previously thought. The firm sees rising global demand for energy storage, driven by the need for generative AI, and now values Tesla Energy at $50 per share, up from $36 previously. This increases the total value of the energy business to $183 billion, compared to the previous estimate of $131 billion.

CEO Elon Musk said during Tesla's annual shareholders meeting on June 13 that the company is targeting 200-300% annual growth in energy storage and stationary storage unit deployment.

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