Morgan Stanley upgrades Tesla stock and boosts price target on high hopes for battery business

  • Morgan Stanley analyst Adam Jonas upgraded Tesla shares to "equal-weight" from "underweight" late Thursday, citing a bullish outlook for company's third-party battery sales.
  • The bank also lifted its price target for Tesla stock to $1,360 from $1,050. The target still implies a 16% decline from Thursday's close.
  • The automaker's third-party battery electric-vehicle powertrain is worth $310 per share and now factors into Morgan Stanley's base case after strong growth.
  • Tesla's September 22 Battery Day event will reveal whether its battery technology meets expectations and justifies the stock's lofty valuation, Jonas said.
  • Watch Tesla trade live here.

Morgan Stanley is growing considerably more bullish toward Tesla shares, and it's not only thanks to the company's car business.

Analyst Adam Jonas upgraded Tesla to "equal-weight" from "underweight" late Thursday and lifted his price target for the shares to $1,360 from $1,050. The new target implies a 16% decline from the stock's Thursday close.

The bank downgraded Tesla shares in June, citing the stock's meteoric rise and fearing the stock's valuation was "driven by factors beyond the business of selling cars." Yet the company's stock leaped even higher, and the bank now sees Tesla's battery segment justifying at least some of the gains.

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The automaker's third-party battery and electric-vehicle powertrain business is now factored into Morgan Stanley's base case and is worth $310 per share, Jonas said.  Tesla is "potentially leapfrogging" the competition with its battery technology, he added, and investors will glean more details on its industry lead during the company's September 22 Battery Day.

Tesla already controls roughly half of automotive battery production around the world. That share could expand if Tesla can ramp up its own battery production while implementing new technologies, according to Morgan Stanley. If rumors of a cheaper and longer-lasting battery being revealed on Battery Day are true, Tesla can reap the benefits of supplying the rapidly growing EV sector, Jonas wrote.

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Investors keeping an eye on Battery Day should focus on whether new battery technologies are production-ready, reduce kilowatt-per-hour costs substantially, and boost performance, Jonas added.

Tesla traded at $1,650.74 per share as of 10:05 a.m. ET Friday, up 298% year-to-date.

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