Tesla Technology Is Undervalued, Analyst Says - Barron's

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Tesla’s autonomous driving technology is worth $45 per share, according to new research, though some investors value it at zero.

Morgan Stanley ’s Adam Jonas on Tuesday suggested in a note that investors “underappreciate [and] undervalue Tesla’s autonomy business. Efforts by auto companies to focus on mobility highlight value, attract capital and retain human talent at an important time.”

Tesla stock (ticker: TSLA) was recently up 1.8% to $216.62 as investors prepared for the company’s annual meeting, scheduled for Tuesday evening. (Barron’sdiscussed the meeting on a story Monday.)

The back story. Jonas rates Tesla stock at Equal Weight with a $230 price target, below FactSet’s $285 average. (He also recently described a $10 per share worst-case scenario for the stock.)

Read more: Tesla Stock Might Take Off, but It’s Not a Buy, Analyst Says

Tesla has lately sought to drive attention toward its autonomous capabilities, which it hopes—as do many other companies—will someday allow for driving that requires no involvement from humans at all.

That might help it sell cars. But Musk has also described a future robotaxi business in which Tesla owners could connect their cars to a network that operates them remotely, giving riders access via an app, and serving up new revenue that is shared with the company.

Other companies investing in autonomous driving see opportunities in commercial fleets or licensing software to other vehicle manufacturers.

What’s new. Jonas says that for his $230 target, $45 of that is for autonomous driving, essentially pretending that the operation was set up as a stand-alone unit—which it isn’t, and for now isn’t expected to be. (Strip that operation out of his target, and that leaves $185, which would be among the Street’s lowest targets for Tesla.)

Read more: Tesla’s Biggest Problem Isn’t Demand, Analyst Say

Jonas is partly inspired by General Motors ’ (GM) Cruise division, which was recently valued at $19 billion in a private fundraising round. “GM Cruise has helped GM attract capital, retain talent and, in our opinion, gain some element of value attribution from the investment community,” Jonas wrote.

Looking ahead. For now, at least, attention seems to be focused elsewhere—namely on more pressing questions about demand for Tesla’s current vehicles. In recent days, dribs and drabs of information about the company’s second-quarter delivery numbers have driven the stock.

“While we still expect near-term volatility in the stock to be driven by real-time data points around demand in the U.S. and international market for Tesla’s electric vehicles,” Jonas wrote, “we also expect discussions around the nature and value of the company’s technology to be an important part of the narrative going forward.”

Email David Marino-Nachison at david.marino-nachison@barrons.com. Follow him at @marinonachison and follow Barron’s Next at @barronsnext.

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