It has long been a discussion on Wall Street, whether Tesla (NASDAQ:TSLA) is a company that makes cars or actually a tech firm.
Finding an easy solution to that question, Morgan Stanley analyst Adam Jonas thinks the company is both. However, going forward from here, he thinks software and services revenue are set to be the “biggest value driver.”
“The same forces that have driven AWS to reach 70% of AMZN total EBIT can work at Tesla, in our view, opening up new addressable markets that extend well beyond selling vehicles at a fixed price.” says Jonas.
So, what will act as the catalyst for that? Dojo, Tesla’s custom supercomputing effort it has been working on for the past 5 years.
Dojo is a custom-designed supercomputer consisting of many thousands of D1 chips housed in an AI data center developed internally by Tesla for the specific purpose of training the full-self-driving (FSD) system present in all Tesla vehicles. According to the company, one reason for pursuing the buildout of its own purpose-built supercomputer is the urgent need for a substantial amount of computing power and NVIDIA GPU clusters. Currently, they face challenges in procuring the required quantity of chips for training their vehicles. Furthermore, they believe they can create a more efficient system tailored to their specific requirements, rather than “funding a supplier’s 60% gross margin.”
Similar to other tech platforms, Tesla sees vertical integration as key and does not want to rely too much on 3rd party suppliers. While Jonas concedes that it is “difficult to explicitly validate the many claims Tesla has made about Dojo’s cost and performance,” he believes that due to Tesla’s track record of innovation and its capabilities, the company has a chance of bringing to market a “competitive customized solution.”
Via a speedier adoption rate in Mobility (robotaxi) and Network Services (SaaS), Jonas thinks that Dojo can add up to $500 billion to Tesla’s enterprise value, and that requires a readjustment to his Tesla model.
As such, the analyst has upgraded Tesla’s rating from Equal-weight (i.e., Neutral) to Overweight (i.e., Buy) and raised the price target from the prior $250 to a Street-high $400. If correct, Jona’s objective could deliver one-year returns of ~47%. (To watch Jonas’ track record, click here)
The rest of the Street is less confident, however; based on 11 Buys, 13 Holds, plus 5 additional Sells, the stock has a Hold consensus rating. Moreover, the recent gains have taken the stock beyond what most consider its fair value; at $266.73, the figure represents possible downside of ~3% from current levels (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
